Non-resident Landlord Tax Explained for Tower Hamlets Landlords 

As a property investor, you are required to comply with tax obligations such as paying income tax and capital gains tax on sales.

For investors living in the UK, rental income tax is paid through income tax in the same way as other income. However, for UK investors who sometimes live overseas and are regarded as non-residents for tax purposes, the process for paying tax on UK property income is different.

To comply with UK tax obligations, landlords who meet the non-resident tax criteria may be required to follow the tax rules under the non-resident landlord scheme (NRLS). If you are a landlord with rental property in Canary Wharf, Whitechapel or Bromley, this guide explains whether the NRLS applies to you.

What is a non-resident landlord?

A non-resident landlord is an individual, company, partnership or trustee who receives UK rental income and whose usual place of abode is overseas. One of the confusing aspects of tax obligations is that it is possible to be a UK resident for other tax purposes but a non-resident landlord under the NRLS.

The definition of having a ‘usual place of abode’ outside of the UK under the NRLS applies to people who live outside of the UK for six months or more of the year. For companies, if their main office is outside of the UK or the company was incorporated outside of the UK, then this defines their usual place of abode as being outside of the UK.

Non-UK resident companies must pay corporation taxes rather than income tax on profits from UK property.

Want to know more? Tax compliance sits alongside a broader set of landlord duties – read our overview of the legal responsibilities of a landlord in Tower Hamlets, find out what property management involves and how an agent can handle NRLS obligations on your behalf, and compare estate agent letting fees to assess the cost of professional support.

What is the Non-Resident Landlord Scheme (NRLS)?

The non-resident landlord scheme was introduced by the UK government to help ensure that UK rental income is paid by overseas landlords. It involves collecting tax on the rental income before the money leaves the UK.

While described as a ‘scheme’, it is really just a set of rules governing how non-resident landlords can pay tax. Some landlords will need to be taxed at source (via tenant or letting agent), and this is the default position. However, eligible landlords can apply to receive their income ‘gross’ and settle the taxes themselves.

How can landlords pay tax under the NRLS?

Often, a letting agent will make the arrangements to pay income tax to HM Revenue and Customs (HMRC) on behalf of the landlord. For tenancies with no letting agent, the tenant is required to withhold tax if they pay more than £100 a week in rent and then make the payment to HMRC.

It is also possible for qualifying landlords to avoid paying the tax at the source (via letting agent or tenant). If approved by HMRC, they may be able to receive the rental income gross and then arrange to pay the tax later.

Under this agreement, the tax is paid when the landlord submits a self-assessment tax form to settle any due tax.

Who is eligible to receive gross rental income?

To be eligible to receive gross rental income, your UK tax affairs must be up to date, and you are also not expected to have any UK tax liabilities for the year in which the application is made.

How to apply to receive gross rental income

You can apply to receive gross rental income for property in the UK using the relevant form on the gov.uk website:

• Individuals – NRL1 form
• Companies – NRL2 form
• Trusts – NRL3 form

Once you have submitted the application, HMRC will respond to confirm whether they approve your request.

What are the obligations for tenants & letting agents?

Where a tenant or letting agent must operate the non resident landlords scheme (NRLS), they are required to complete an NRL4 form to register for NRLS. They will then deduct the relevant tax and pay the tax every quarter. Tenants and landlords must also provide an annual return (NRLY form) and issue a from NRL6 certificate, which provides the payment details for landlords to complete their tax returns.

Handling tax obligations can be complicated, which is why the expertise of an estate agent can be highly beneficial – take a look here to find out what a property management service involves.

As an experienced letting agent for Tower Hamlets areas such as Wapping and Bethnal Green, we support overseas and local landlords in meeting their tax obligations and additional landlord responsibilities. Please contact us if you would like to find out more.