The NRLS is the mechanism by which HM Revenue & Customs
(HMRC) collects the tax due on the UK rental income of non-resident
landlords. Non-resident landlords are individuals, companies or
trustees who receive rental income from property owned in the UK
and whose "usual place of abode" is outside the UK.
The scheme requires UK letting agents (or tenants if the weekly
rent exceeds Ł100 and no letting agent is appointed) to
deduct basic rate tax (currently 20%) on any rental income they
collect on behalf of non-resident landlords and pay this tax over
to HMRC on a quarterly basis.
Non-resident landlords can offset any tax deducted under the
NRLS against their tax liability when they complete and file their
UK Tax Return.
However, it is not necessary for letting agents or tenants to
deduct tax from rental income of a non-resident landlord if HMRC
informs them by letter that the landlord is approved to receive the
rental income gross.
Obligations on letting agents and tenants
A letting agent is a person:
Whose usual place of abode is in the UK;
Who acts on behalf of a non-resident landlord in respect of the
management and administration of his or her UK rental business;
Who is entitled to receive income of that rental business or
has control over the direction of that income.
Under the NRLS, letting agents include people acting in a
professional capacity (e.g. estate agents, solicitors and
accountants). Under the scheme a friend or relative of the landlord
may also be a letting agent if they meet the criteria set out
Letting agents who are required to operate the NRLS must:
Register with HMRC within 30 days of the date on which they are
first required to operate the scheme;
Account quarterly to HMRC for any tax payable under the
Complete an annual information return for the year to 31 March
which must be filed with HMRC by 5 July each year;
Provide a certificate to the non-resident landlord each year if
they are required to account for tax; and
Keep sufficient records to demonstrate that they have complied
with the requirements of the scheme.
Tenants who are required to operate the NRLS have almost
identical obligations as those of letting agents above.
Calculation of the tax by letting agents and tenants
Letting agents operating the NRLS should calculate tax each
quarter at the basic rate on rental income less any deductible
expenses. For this purpose letting agents should take into account
all rental income they receive in the quarter and rental income
which is not received but paid away to a third party (including the
landlord) at the direction of the letting agent.
Tenants should calculate tax at the basic rate on rental income
they pay in the quarter to the landlord and any payments they make
in the quarter to third parties, where those payments are not
HMRC has confirmed that it does not expect letting agents (or
tenants) to be tax experts in order to operate the NRLS. An expense
should only be deducted where the letting agent (or tenant) can be
reasonably satisfied that it is an allowable expense in computing
the profits of the landlord's business.
In calculating the profits of a rental business, expenses are
generally allowable where they are incurred wholly and allowable
for the purposes of the rental business and they are not of a
Letting agents acting on behalf of non-resident landlords have
an obligation to register with HMRC. They are required to calculate
tax each quarter at the basic rate on rental income after the
deduction of any deductible expenses and account for any tax
deducted to HMRC.
The letting agent must also provide a certificate to the
non-resident landlord confirming the amount of tax deducted and
paid over to HMRC for each tax year.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The BEPS project is part of wider developments in the international tax field, including plans for automated exchange of information between tax authorities and efforts to improve transparency on tax matters.
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