Non-resident landlord tax obligations in the UK

You are an NRL in the eyes of HM Revenue & Customs (HMRC) if you meet these conditions:

1. You have moved abroad to live
2. Your main home is outside the UK
3. You are in the UK for under 183 days per year

If you live overseas for more than half the year and rent out residential or commercial property in the UK, you are an NRL for tax purposes, regardless of your nationality or place of birth.

Tax Rates for NRLs

Non-resident landlords must pay UK income tax on their rental profits from properties in Britain, whether the properties are let directly or through an agent. The tax rates are the same as for UK residents:

• 20% basic rate on rental profits from £1 to £37,700

• 40% higher rate on profits between £37,701 to £125,000

• 45% additional rate on profits over £125,000

These thresholds are for the 2023/24 tax year. NRLs usually don't get a personal allowance, so they pay 20% tax from the first pound of profit. Companies pay 19% corporation tax on UK rental income.

Reporting Income with the NRL1 Form

NRLs must report their UK rental income to HMRC to avoid penalties. HMRC can take away NRL status and make the letting agent deduct tax from the gross rent if income is not reported. To inform HMRC, submit a 'Non-resident landlord scheme – Notification form' known as the NRL1. This asks for:

• Your name, home address, contact details

• When you became a non-UK resident

• A list of your UK rental properties

• Estimated rental income for each

• Details of any letting agents used

• Your bank account for paying tax

Once HMRC approves your NRL1, they will give you a Unique Taxpayer Reference (UTR) number to use when reporting income and expenses on your self-assessment tax return.

Personal Allowance for NRLs

Most people get a £12,570 tax-free personal allowance, but some NRLs don't qualify for this. British citizens, armed forces members, and those from the Commonwealth and EU are usually allowed to do so.

Using a Tax Agent

Managing UK tax affairs from abroad can take time and effort. One option is to appoint a local tax agent or accountant to handle it for you. They can file returns, liaise with HMRC, and provide assistance. With an approved agent, you don't have to pay tax upfront under the NRL scheme. The agent collects rent without deduction and accounts for tax at year-end.

You still need to provide the agent's income, expense, property, and offshore status details. UK-based adults or registered accountants can act as agents, with many specializing in NRL tax.

Penalties for Not Complying

Failing to report UK rental income as an NRL can mean hefty penalties:

• £100 penalty if the tax return is up to 3 months late

• £10 per day up to £900 if over three months late

• £300 penalty if more than six months late

• £300 penalty for paying tax late

• Daily interest on late tax payments

Continued non-compliance risks higher penalties:

• Up to 30% of tax due for careless errors

• Up to 70% of tax for deliberate errors

• Possible prosecution for tax evasion

HMRC can also recover unpaid tax from agents or tenants at 20%. NRLs must take UK tax obligations seriously to avoid problems.

Other Key NRL Rules

Some other important points for NRLs:

• The NRL scheme applies to individuals, partnerships, trusts and offshore companies

• Maintain records of income, expenses, repairs

• File self-assessment or company tax returns yearly

• Appoint a UK-based accountant to help

• Special rules for furnished holiday lets

Tax compliance is crucial for all businesses. Errors or late payments can mean severe financial or legal penalties that impact operations. Tax rules are complex and change often. Staying current and adapting is vital to avoid penalties and ensure legal compliance.

"Are you aware that HMRC has the authority to scrutinize your tax affairs for up to two decades under COP9 (code of Practice 9) if they identify any undeclared income? Failing to report all your income can lead to serious repercussions, including significant penalties and the risk of legal proceedings. To safeguard yourself, it's vital to ensure that you've disclosed all your income to HMRC. This is not only the responsible course of action but also helps maintain your peace of mind and financial security. You can utilize HMRC's Disclosure Services to report your income or turn to the Worldwide Disclosure Facility for income earned outside the UK."