Homesure Property

Overseas Landlords – Tax on your Rental Income

If you’re a landlord who lives abroad, we have to deduct tax from you and pay HMRC directly.

We’ve put together a summarised view of the full legislation (available here) as a starting point for you.

Please note! We are NOT tax advisers and you should seek advice direct from HMRC for your individual situation.

We’ll predominantly look at Chapters 1 to 5 and Chapters 9 to 12, as these apply to landlords where a letting agent is involved.


Initial FAQs

What is the 'Non-resident Landlords Scheme' (NRL)?

We take tax off at source, and give it to HMRC.

Am I a non-residential landlord?

If your ‘usual place of abode’ is outside the UK, then YES.

‘Usual’ is defined as an absence from the UK of six months or more.

What does a Letting Agent have to do?

Letting agents of a non-resident landlord must:-

  • deduct tax from the landlord’s NET UK rental income, and;
  • pay the tax to HMRC.

When does this have to be done?

For the purposes of the NRL Scheme, the year runs from 1 April to the following 31 March. Letting agents and tenants who have to operate the Scheme must account for tax each quarter – that is, for the three-month periods ending on 30 June, 30 September, 31 December and 31 March.

Can I avoid doing it?

Letting agents do not have to deduct tax from the rental income of a non-resident landlord if HMRC has told them in writing that the landlord is approved to receive the rental income with no tax deducted.

Non-resident landlords can apply to HMRC for approval to receive rental income with no tax deducted where:

– their UK tax affairs are up to date; or – they have never had any UK tax obligations; or – they do not expect to be liable to UK tax for the year in which the application is made.

Where can I get more information?

You can WRITE to HMRC at:- HM Revenue & Customs Personal Tax International Operations S0708 PO Box 203 BOOTLE L69 9AP

 

You can CALL the Non-Resident Landlord Scheme Helpline on 03000 516 644 or 03000 516 651. If you are calling from abroad +44 3000 516 644 or +44 3000 516 651. Forms are available from the HMRC website, www.gov.uk/government/organisations/hm-revenue-customs.

 


Going into more detail…

The questions below DO NOT apply to LET-ONLY landlords, only FULLY MANAGED.
If you manage your own property, you must complete your own report.

CHAPTER 3 - Letting agents’ obligations

Letting Agents MUST:-

  • register with PTI;
  • account quarterly for any tax to HMRC;
  • complete an annual information return;
  • where they are required to account for tax, provide their non-resident landlords with a certificate each year; and
  • keep sufficient records to show that they have complied with the requirements of the Scheme.

CHAPTER 4 - How letting agents calculate the tax

Letting agents who have to operate the Non-resident Landlords (NRL) Scheme must calculate the tax for each quarter.

Quarters end with the last day of June, September, December and March. Letting agents must pay the tax due to HMRC, within 30 days of the end of the quarter.

Letting agents should calculate tax at the basic rate on rental income less any ‘deductible expenses’.

 

Example 1 ABC Ltd is due to collect rental income of £5000 a quarter for Jean, who is a non-resident landlord. In one quarter it collects only £2500. It pays out £200 for gardening and cleaning. The calculation is: Rental income received £2500 Less deductible expenses paid £200 £2300 Basic Rate tax on £2300 (20% for 2010/11): £460

 

Example 2 ABC Ltd is due to collect rental income of £3000 a quarter for Joan, a non-resident landlord. But ABC Ltd authorises the tenant to pay £1000 to a third party in settlement of a loan (this is not a deductible expense). The calculation is: Rental income received £2000 Plus rental income paid away at ABC Ltd’s direction £1000 £3000 Basic Rate tax on £3000 (20% for 2010/11): £600

 

Example 3 If, in Example 2, ABC Ltd had authorised the tenant to pay £1000 to a builder to repair a leaking roof, instead of the payment to a third party to repay a loan, the £1000 would be a deductible expense. The calculation would then be: Rental income received £2000 Plus rental income paid away at ABC Ltd’s direction £1000 Less deductible expenses £1000 £2000 Basic Rate tax on £2000 (20% for 2010/11): £400

CHAPTER 5 - Letting Agents: Annual Returns & Certificates

Letting agents must provide to PTI by 5 July each year an information return on form NRLY, available on the HMRC website, for the year to 31 March.

The following details must be shown separately for each non-resident landlord:

  • the landlord’s name and address;
  • the amount of rental income for the year to 31 March before the deduction of expenses;
  • if the letting agent is NOT authorised to pay rental income to the landlord with no tax deducted – the deductible expenses for the year to 31 March, and; – the total of the tax shown as payable in the letting agent’s quarterly returns for the year to 31 March;
  • if the letting agent IS authorised to pay rental income to the landlord with no tax deducted, the landlord’s approval reference number.

 

Certificate to be provided by letting agents

Where letting agents are liable to pay tax under the NRL Scheme in any year in respect of a non-resident landlord, they must provide the landlord with a certificate by 5 July following the end of the year to 31 March.

The certificate must include the following information:-

  • the non-resident landlord’s name and address;
  • the letting agent’s name and address;
  • the year ended 31 March to which the certificate relates; and
  • the letting agent’s total liability to tax for the year ended 31 March in respect of the landlord.

Letting agents can use a copy of the certificate available from the HMRC website (NRL6). They should keep a copy for audit purposes. Landlords should not complete the certificate themselves.

CHAPTER 10 - Deductible/Allowable Expenses

For detailed information, click here for allowable expenses as per HMRC.

We  (HOMEsure) treat this as ‘reasonable’ expenses, and therefore in the same way that HMRC deals with individual landlords’ letting expenses.

 

OVERVIEW

Broadly, in calculating the profits of a rental business, expenses are allowable where:

  • they are incurred wholly and exclusively for the purposes of the rental business; and
  • they are not of a ‘capital’ nature.

 

SPECIFIC EXAMPLES

  • accountancy expenses (incurred in preparing rental business accounts but not for preparing personal tax returns);
  • advertising costs of attracting new tenants;
  • charges for inventories;
  • cleaning;
  • costs of rent collection;
  • Council Tax while the property is vacant but available for letting;
  • gardening;
  • ground rent;
  • insurance against loss of rents;
  • insurance claim fees;
  • insurance on buildings and contents;
  • interest paid on loans to buy land or property;
  • interest paid on loans to build or improve premises;
  • legal and professional fees;
  • letting agents’ fees;
  • maintenance charges made by freeholders, or superior leaseholders, of leasehold property;
  • maintenance contracts (for example gas servicing);
  • provision of services (for example gas, electricity, hot water);
  • rates;
  • rental warranty and legal expenses insurance;
  • repairs which are not significant improvements to the property, such as damp and rot treatment, mending broken windows, doors, furniture, cookers, lifts, and so on, painting and decorating, replacing roof slates, flashing and gutters, repointing, and stone cleaning.

(Still) CHAPTER 10: Value Added Tax (VAT) and Fees

If any expenses that are deductible in computing the profits of the rental business have borne Value Added Tax (VAT) and that VAT cannot be relieved as ‘input tax’ because, for example, the landlord is not registered for VAT, the deductible expense is the amount inclusive of VAT, i.e. the GROSS amount.

Letting agents’ own fees

Letting agents’ own fees are deductible expenses, even though they are retained by the letting agent from rents received as opposed to paid out by the letting agent to a third party.

CHAPTER 11 - Approval to receive rental income with no tax deducted

Most non-resident landlords who wish to receive their rental income with no tax deducted should apply for approval to PTI.

The application must be made on one of the following forms, available from the HMRC website: NRL1i – if the applicant is an individual NRL2i – if the applicant is a company NRL3i – if the applicant is a trustee (including a corporate trustee).

Non-resident landlords can apply for approval to receive their rental income gross on the basis that:

  • their UK tax affairs are up to date; or
  • they have never had any UK tax obligations; or
  • they do not expect to be liable to UK tax for the tax year in which the application is made.

 

Want to speak to someone?

If you want to speak to a recommended, professional accountant, call ERC Accountants on 0151 702 5600.

If you want to speak to me, please call Nick Stott on 0151 722 22 22.