The NRL scheme is a scheme for taxing the UK rental income of persons whose usual place of abode is outside the UK (a non-resident landlord). A tenant may find themselves obliged to operate the scheme if their landlord lives outside of the UK, does not have a letting agent and does not have the appropriate approval from HMRC.
Who is considered a non-resident landlord?
A person whose usual place of abode is outside the UK is considered a non-resident landlord. An individual is considered a non-resident landlord if they have been outside of the UK for longer than 6 months. Normally companies are considered non-resident landlords if they are incorporated outside the UK and their main offices are outside the UK. Partners are considered individually as a separate landlord in respect of their share of the rental income.
Requirements of the scheme
The scheme requires income tax at the basic rate (currently 20%) to be deducted from rental payments due to non-resident landlords.
The scheme must be operated by letting agents or if there is no letting agent the tenant (tenant paying rent of more than $100 per week or $5,200 per year). A tenant is obliged to deduct tax from the landlord’s UK rental income and pay the tax to HMRC’s Account Office in Shipley. A tenant should initially contact HMRC and register for the scheme if their landlord is a non-resident landlord. HMRC will then send the tenant an information pack detailing the necessary steps and forms the tenant is required to complete and submit to HMRC and the landlord. Tenants should keep sufficient records of payments, copies of correspondence with the landlord, and copies of all documentation relating to the scheme for at least four years.
If the usual place of abode of the landlord is in doubt, tenants are obliged to find out more information. Where a tenant has no reason to believe the landlord has a usual place of abode outside the UK they are not required to make any special enquiries and do not have to operate the scheme. HMRC advises tenants to not rely on PO Boxes or care of addresses when considering a landlord’s residence.
Tenants not required to operate the scheme
Tenants paying rent to a letting agent in the UK or paying rent of less than £5,200 per year are not obliged to operate the scheme. A tenant paying rent of more than £5,200 may also avoid having to operate the scheme if the landlord has received approval from HMRC allowing the landlord to receive their property income without tax being deducted. A tenant should not rely on assurances from their landlord. A tenant should request a copy of HMRC’s Notice of Approval prior to making payment of the rent without deduction of income tax.
A landlord may apply to HMRC to receive the rent without deduction. HMRC will approve an application on the basis that the landlord’s tax affairs are up to date, the landlord has never had any UK tax obligations, and lastly, that the landlord does not expect to be liable for UK tax for the year in which they make their application.