Guidance

What the Non-resident Landlords Scheme is

Updated 20 September 2024

The Non-resident Landlords Scheme (NRLS) taxes the UK rental income of people whose ‘usual place of abode’ is outside the UK.

A ‘letting agent’ includes anyone who manages property on behalf of a non-resident landlord.

Letting agents of a non-resident landlord must deduct tax from the landlord’s UK rental income and pay the tax to HMRC.

If the landlord does not have letting agent, you will need to operate the NRLS. If you’re a tenant who pays rent of £100 a week or less, you do not have to use the scheme unless you’re told to do so by HMRC.

If you’re a letting agent, you must use the scheme regardless of the amount of the rent you collect, even if it is £100 a week or less.

Read more information about the NRLS for:

• agents in Which agents should operate the Non-resident Landlords Scheme
• tenants in Which tenants should operate the Non-resident Landlords Scheme

For the purposes of the NRLS, the year runs from 1 April to the following 31 March.

Letting agents and tenants who have to use the scheme must account for tax each quarter. This means for the 3-month periods ending on:

• 30 June
• 30 September
• 31 December
• 31 March

Letting agents and tenants 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. HMRC will give approval and register the landlord for self-assessment if their UK tax affairs are up to date or either:

• they have never had any UK tax obligations
• they do not expect to be liable for UK tax for the year in which the application is made

The legislation

The legislation is in Sections 971 and 972 Income Tax Act 2007, which is supported by the Taxation of Income from Land (Non-residents) Regulations 1995, SI 1995 No. 2902, which apply to rent received on or after 6 April 1996.

The primary legislation used to be in Section 42A Income and Corporation Taxes Act 1988.

If you have enquiries about the old arrangements you should contact HMRC for advice.

What is a non-resident landlord

Non-resident landlords are people who have UK rental income and whose ‘usual place of abode’ is outside the UK.

For the purposes of the NRLS, landlords may include:

• individuals
• companies
• trustees
• partnerships

Each partner is treated as a separate landlord for their share of the rental income.

Usual place of abode

The NRLS applies to you if your usual place of abode is outside the UK.

This may be the same as your place of residence for tax purposes, but not always.

For individuals, HMRC normally regard an absence from the UK of 6 months or more as meaning you have a usual place of abode outside the UK. It is possible for you to be resident in the UK but have a usual place of abode outside the UK.

A company will normally have a usual place of abode outside the UK if either:

• its main office or other place of business is outside the UK
• it was incorporated outside the UK

The usual place of abode is within the UK for the purpose of the NRLS where:

• a company is regarded as resident in the UK for tax purposes, even though it may be incorporated outside the UK
• a UK branch of a non-resident company must pay Corporation Tax

Trusts are regarded as outside the UK, if all the trustees have a usual place of abode outside the UK.

If one or more of the trustees has a usual place of abode within the UK, the trust is not a non-resident landlord for the purposes of the NRLS.

Joint ownership by spouses or civil partners

The NRLS applies to both spouses and each are treated as a separate landlord, if:

• the spouses or civil partners jointly own a UK property
• they both have their usual place of abode outside the UK

If they both wish to receive the rental income with no tax deducted, both must complete a separate application form and send it to HMRC.

Letting agents and tenants only pay rental income with no tax deducted to the person named on a HMRC authorisation.

You should not pay rent without tax deducted to a person who does not hold authority to do so, even if their spouse or civil partner does.

If only one spouse or civil partner has a usual place of abode outside the UK, the NRLS applies to only that person’s share of the rental income.

The scheme will not apply to the rental income belonging to the UK-resident spouse or civil partner. They will not need HMRC approval to receive income without tax deducted, but must notify HMRC that they receive UK property income.

Members of HM Armed Forces and other crown servants

Members of HM Armed Forces and other crown servants are treated the same as any other non-resident landlord. If they receive UK rental income and have a usual place of abode outside the UK, the NRLS applies to them.

If their usual place of abode is outside the UK and they wish to receive rental income with no tax deducted, they’ll need to apply to HMRC for approval.

How letting agents and tenants know if a landlord has a ‘usual place of abode’ outside the UK

A landlord’s usual place of abode will usually be clear without the need for special enquiries. If it is outside the UK, letting agents or tenants should operate the NRLS. If the usual place of abode is in doubt, you should get more information from the landlord. PO Box numbers and ‘care of’ addresses should not be relied on as evidence that the scheme does not apply.

In cases of difficulty, letting agents and tenants can contact HMRC.

Where you have no reason to believe that a landlord has a usual place of abode outside the UK, you are not required to make any special enquiries. You do not have to operate the NRLS.

Rental income

A letting agent using the NRLS must calculate tax each quarter on the rental income received, less deductible expenses they’ve paid. You should take into account:

• all rental income you received in the quarter
• rental income you did not receive in the quarter, but which is paid to a third party (including the non-resident landlord)

If you’re a tenant using the scheme, you must calculate tax each quarter on the rental income you paid in the quarter. You should take into account:

• all rental income you paid to the non-resident landlord in the quarter
• all rental income you paid to third parties in the quarter, unless the payments are ‘deductible expenses’

You should take into account all rental income received or paid in the quarter, even if it relates to rent due for an earlier or later period. You should not calculate tax for a quarter on rental income that was due in the quarter, but was not paid in the quarter.

Information about the taxation of income from UK property can be found in the Property Income Manual.

When rental income is received or paid by cheque

If you’re a letting agent you’ll receive income by cheque on the day the cheque is paid into your account, not on the day it is cleared. If the cheque is dishonoured, you should not take the amount into account in your calculation of tax due.

If you’re a tenant paying rental income by cheque the payment is made on the day you send the cheque to the landlord, not on the day it is cashed or cleared. If the cheque is dishonoured, you should not take the amount into account in your calculation of tax due.

Examples of rental income

Rental income includes a variety of receipts from land and property. Rental income includes:

• income from letting furnished, unfurnished, commercial and domestic premises, and from any land
• where property is let furnished, any separate sums from the tenant for the use of the furniture
• rent charges, ground rents and feu duties
• premiums and other similar lump sums received on the grant of certain leases
• income from the grant of sporting rights, such as fishing and shooting permits
• income from allowing waste to be buried or stored on land
• income from letting others use land — for example, where a film crew pays to film inside a person’s house or on their land
• grants received from local authorities or others contributing to expenditure which is an allowable expense, such as repairs to a let property
• rental income received through enterprise investment schemes
• income from caravans or houseboats where these are not moved around various locations
• insurance recoveries under policies providing cover against non-payment of rent
• service charges received from tenants for services ancillary to the occupation of property (other than those falling within Section 42 of the Landlord and Tenant Act 1987)

Premiums

Lump sums received up front for the grant of a lease of 50 years or less are liable to Income Tax. These receipts are generally called ‘premiums’. They are treated wholly or partly as rental income.

The amount treated as rental income is calculated on a sliding scale that depends on the length of the lease. The rule is that the amount treated as rental income is the premium reduced by 2% of the premium for each complete year of the lease after the first. This means:

• the full amount of the premium is treated as rental income where the lease is for less than 2 years
• 98% of the premium is treated as rental income if the lease is for 2 years or more but for less than 3 years
• 96% of the premium is treated as rental income if the lease is for 3 years or more but for less than 4 years

This continues until none of the premium is treated as rental income if the lease is for more than 50 years.

Find more information about premiums in the Property Income Manual.

Income which is not rental income

There are certain receipts which come from the use of land that are not rental income. These include income from:

• woodlands managed on a commercial basis
• mines and quarries (including gravel pits, sand pits and brickfields)
• ironworks, gasworks, salt springs or works, alum mines or works and water works and streams of water
• canals, inland navigations, docks, and drains or levels
• rights of markets and fairs, tolls, bridges and ferries
• railways and other ways
• lettings of tied premises by traders
• carrying out a trade — for example, running a hotel

Deductible expenses

You should take into account expenses you pay on behalf of the landlord that you can be ‘reasonably satisfied’ are allowable expenses in calculating the profits of the landlord’s rental business.

This section gives guidance on which expenses can be taken into account when you calculate the tax due. These expenses are called ‘deductible expenses’.

HMRC’s Property Income Manual, gives further information about allowable expenses.

‘Reasonably satisfied’

HMRC does not expect you to be a tax expert to operate the NRLS. The test is that an expense should be deducted only where you can ‘reasonably be satisfied’ that it is allowable in calculating the profits of the landlord’s rental business. This provides protection for you in 2 ways:

• where you have reason to be uncertain whether an expense is an allowable expense of the non-resident landlord’s rental business, you are justified under the rules in not deducting it when calculating the tax due
• where you can reasonably be satisfied that an expense is an allowable expense of the non-resident landlord’s rental business, you can deduct the expense without fear of being penalised if it is later found that the expense is not allowable

You cannot reasonably be satisfied that an expense is allowable in calculating the profits of the landlord’s rental business solely because the landlord says that it is allowable. If you have reason to believe it may not be an allowable expense you should not deduct it.

Allowable expenses of a rental business — basic test

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
• not of a ‘capital’ nature

Examples of expenditure which is of a ‘capital nature’ are the cost of:

• land
• buildings
• improvements
• alterations

Find more information about what is an expense of a capital nature is in the Property Income Manual.

Examples of allowable expenses for rental businesses

The following expenses paid by you will normally be deductible expenses if they meet the basic test:

• 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, except VAT — no interest can be deducted on residential property
• interest paid on loans to build or improve premises, except VAT — no interest can be deducted on residential property
• 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
• water rates
• repairs which are not significant improvements to the property, such as:
  • damp and rot treatment
  • mending broken windows, doors, furniture, cookers, lifts, for example
  • painting and decorating
  • replacing roof slates, flashing and gutters
  • repointing
  • stone cleaning

VAT

The deductible expense is the amount inclusive of VAT, if any expenses that are deductible in working out the profits of the rental business either:

• had VAT charged on them
• the VAT cannot be relieved as ‘input tax’ because, for example, the landlord is not registered for VAT

Approval to receive rental income with no tax deducted

How non-resident landlords can apply

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

Landlords whose tax affairs are dealt with by HMRC’s Public Departments 1 office should apply to their tax office. The addresses and telephone numbers are shown on the application form for individuals.

You should apply using one of these forms:

• NRL1, if you’re an individual
• NRL2, if you’re a company
• NRL3, if you’re a trust

The form pages include information on completing an application, and what happens after it is received by HMRC. There are also notes within the application forms that explain how to complete them.

HMRC will give approval and register the landlord for self-assessment if:

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

Sovereign immunity

You must apply to HMRC to receive your UK rental income with no tax deducted if you’re exempt from UK tax because of sovereign immunity.

You do not need to complete an application form. You should apply by writing to HMRC. If possible, enclose a copy of the letter in which HMRC confirms your ‘sovereign immune’ status.

When an application can be made

If you’re leaving the UK to live abroad you should apply no more than 3 months before you leave the UK.

HMRC cannot consider an application before then. If your usual place of abode is already outside the UK you can apply immediately.

Withdrawal of approval

HMRC may withdraw approval from a landlord if:

• they are no longer satisfied that the information given in the application is correct
• they are no longer satisfied that the non-resident landlord will follow their UK tax obligations
• the non-resident landlord fails to supply information requested by HMRC

If this happens, HMRC will:

• send a notice to the landlord withdrawing approval, giving the reason for it and the date from when it is effective
• tell you as the letting agent or tenant of the date from when you should start deducting tax from rental income

The notice will explain how the landlord can appeal against the withdrawal. Landlords should appeal in writing within 90 days of the date of the notice. If the appeal cannot be settled by agreement between both parties, an independent appeal tribunal will hear it.

Changes of letting agent or tenant

If HMRC has not been told about a change, the new letting agent or tenant will not hold a notice from them that lets them pay rent without deducting tax. In such cases tax should be deducted from the rental income of a landlord that has a valid approval.

If these circumstances apply after 31 March in any year, you as the letting agent or tenant should complete an annual return and provide a certificate showing the tax deducted.

If you receive a notice before 31 March and have deducted tax from the landlord’s rental income at any time since the previous 1 April, you can either:

• contact HMRC to discuss the recovery of any tax deducted for the relevant quarters (recording transactions where any money is recovered and paid to the landlord)
• agree with the landlord to issue a certificate after the end of the year to cover the tax deducted and to make no further deductions during the year

If a non-resident landlord dies

If a non-resident landlord dies, any HMRC approval to pay rent without tax deducted does not apply. If you have to continue paying the same rent to someone else after a landlord’s death you should deduct tax unless the new payee either:

• does not have a usual place of abode outside the UK (for example, a UK executor)
• is someone who already holds an approval notice (for example, the landlord’s surviving spouse)

The new payees can apply for HMRC approval to receive their rent without deduction of tax.

Use form NRL3 to get UK rental income without deduction of tax if the following apply:

• you’re an executor or trustee
• your usual place of abode is outside the UK

Irish charities, superannuation schemes and insurance companies

Under Article 14A of the UK and Republic of Ireland Double Taxation Convention, the following types of Irish tax-exempt landlords do not need to pay UK tax on their rental income:

• charities
• superannuation schemes
• insurance companies (for their pension business)

These landlords should not fill in forms NRL1, NRL2 or NRL3. They should claim exemption under the Double Taxation Convention by filling in a form Ireland-Company.