What all landlords need to know about the Non-Resident Landlord (NRL) scheme.
In our latest video, Sarah Howarth, Director, and Jon Chambers, Senior Manager, both in the Tax team, discuss the Non-Resident Landlord (NRL) scheme, a crucial mechanism designed to protect the UK tax base by ensuring rental income from UK properties is taxed appropriately before it leaves the country.
The video covers three central topics:
- What is the NRL scheme?
- Administrative key points to understand.
- How to calculate the amount you owe?
The NRL regime mandates a 20% basic rate of tax on rental income for landlords residing outside the UK. This measure aims to prevent the erosion of the UK tax base as rental income flows overseas. Consequently, overseas landlords receive their UK rental income net of this tax, which can significantly impact their cash flow.
To mitigate this cash flow issue, landlords can apply to HMRC for gross rental status, allowing them to receive their rental income without the automatic 20% tax deduction. Individual landlords must submit form NRL1, while companies should submit form NRL2. Achieving gross rental status requires compliance with UK tax filing requirements, marking an important step for NRLs.
For many, applying for gross rental status might be their first interaction with HMRC. Individual landlords need to register under self-assessment, file their tax returns by the end of January each year, and make tax payments by the same deadline. Larger payments may require bi-annual payments in January and July, similar to UK residents. Companies on the other hand, fall under the corporation tax regime with filing required within 12 months of their accounting period end date. Larger companies might need to make quarterly instalment payments and comply with more complex regimes such as the corporate interest restriction. Specific online filing requirements apply to all companies more generally, such as iXBRL tagging of financial statements.
Jon and Sarah discuss the differences in how rental profits are calculated for individual and corporate landlords.
Understanding the tax calculations is crucial for NRLs to navigate the UK tax landscape effectively. By applying for gross rental status and adhering to the relevant filing requirements, landlords can better manage their cash flow.
Should you have any questions for Sarah, Jon, or any of our other Price Bailey tax experts following the content within the video, use the form below to contact us…
Transcript
0:00:01 – Sarah
Okay, Jon, back to basics. What is the NRL regime for someone that isn’t familiar with that term?
0:00:07 – Jon
Okay, so the NRL regime, non-resident landlord scheme is a mechanism to protect the UK tax base, rental income leaving the UK. HMRC would want 20% tax.
0:00:20 – Sarah
So overseas landlords are going to then receive their UK rental income net of tax, which potentially could have quite a big cash flow impact for them, I guess. Is there anything they can do to make sure they receive that rent gross?
0:00:32 – Jon
There is. Yes, cash flow could be a major issue. So, they can apply to HMRC for gross rental status. For individuals they can submit form NRL1, companies NRL2. Basically, it means that they have to comply with UK filing requirements effectively.
0:00:52 – Sarah
Okay, so I suppose for those individuals or companies that might be their kind of first interaction with the UK tax system. So, other than filing the return itself, are there any kind of associated administrative bits they would need to be aware of?
0:01:06 – Jon
So yes, for individuals, they would need to register under self-assessment. Effectively means that they file their tax return every year by the end of January. Payment wise, they’d also pay the income tax end of January. For larger payments they would enter the normal regime whereby they pay the same as UK individuals every six months, January and July. Companies, they would enter the corporation tax regime and filing would be 12 months from their accounting period end date. For larger companies, they would fall into the quarterly instalment regime, which may mean they make payments even during their accounting period to HMRC. And for companies specifically, they must just be aware of certain online filing requirements, such as IXBRL tagging of their financial statements.
0:01:59 – Sarah
Okay, so actually potentially quite a lot to think about. It sounds like there’s some differences between individuals and companies in terms of administration. Are there any differences in terms of the calculation of the rental profits themselves between an individual landlord and a corporate landlord?
0:02:14 – Jon
So, there’s not much difference between the two, I would say. Individuals pay tax at the basic rate of 20% and the higher rates of 40 and 45%. Companies are now paying tax at either 19, 25 or an effective rate of 26.5%. But the way you calculate the rental income would be quite similar in terms of gross rents, main operating rental expenses, repairs rates, insurance, etc. Just one thing to note on interest. Individuals get a 20% basic rate tax deduction for the amount of interest they pay and companies will get a full deduction for the interest against their profits unless their interest costs exceed £2 million. So, we do have group situations that incur very large interest costs. They enter quite a complex corporate interest regime which does require much more attention to calculate what is deductible. So, there is quite a difference in that respect. But in terms of submitting to HMRC, the filing requirements and the calculations can be quite similar.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.