Investing in a UK property can be a great way to secure an income stream, but the taxation surrounding rental income is steep and things can get complex pretty quickly. Fortunately, if you are deemed to be a non-UK resident for tax purposes, you could be eligible for the Non-resident Landlord (NRL) Scheme. This set of tax rules allows you to receive your full UK rental income, free of any UK tax.
What is a non-resident landlord?
If you own a property in the UK for which you receive a rental income, you will be considered to be a landlord. If you are classified as a non-UK resident for tax purposes, you can apply to be designated as a non-resident landlord.
Rental income has a wider definition than most people realise. This is important as you may be renting something out and not have ever considered yourself a landlord. Rental income includes money received for a wide variety of things, such as:
- Letting furnished, unfurnished, commercial or domestic premises or land
- Use of the furniture in a rented property
- The grant of certain leases
- Sporting rights, such as fishing and shooting permits
- Allowing waste to be buried or stored on land
- Allowing others to use the property e.g. a film crew pays to film inside a person’s house
- Grants to help with allowable expenses, such as repairs
- Enterprise investment schemes
- Caravans or houseboats that are not moved around
- Insurance policies for non-payment of rent
- Service charges
A tax-free income stream
Usually, the tenant or letting agent renting out your UK property will be required to deduct basic rate tax at a whopping 20% and pay that tax to HMRC before paying you the rental amount. This applies whether the property is owned by an individual, a group, a company or a trust. For joint owners, tax is paid on their share of rental income.
That’s a lot of tax, but here’s the great news: If you register in terms of the Non-resident Landlord Scheme, the tenant or letting agent does not have to deduct any tax at all. You can receive your entire rental income amount, tax-free.
Being a part of this scheme is hugely beneficial and can save you a lot of money in the long run. To be a part of the NRL Scheme, you have to apply to HMRC and prove your status as a UK non-resident.
Applying for the Non-resident Landlord Scheme
You can apply to HMRC to become part of the Non-resident Landlord Scheme before you leave the UK or even before you begin renting out your UK property. The key to having your application approved is providing enough evidence to firmly establish your non-residency status.
Establishing this can be more complex than you’d think and HMRC assesses each application on a case-by-case basis. You will also have to ensure that you comply with all other UK tax obligations while under the scheme, such as declaring your rental income on your Self Assessment tax return. HMRC will not approve your application if your taxes aren’t up to date, for example if you’re late with your tax returns or payments at any point.
HMRC can withdraw their approval of your application at any time if:
- They are no longer satisfied that the information in the application is correct
- They are no longer satisfied that the non-resident landlord will comply with their UK tax obligations
- The non-resident landlord fails to supply information requested by them
Invest in a UK property, get rental income tax-free
If you’re a non-resident and you have a UK property that you’re considering renting out, we advise you to apply for the NRL Scheme as soon as possible. If you’re considering investing in a UK property, our UK mortgage specialists can take you through your mortgage options, and provide a free initial assessment of your case.
We are a professional services company that specialises in cross-border financial and immigration advice and solutions.
Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you'll do so with the backing of experienced local experts.