To prevent non-resident landlords avoiding their UK taxation obligations arising from the profit on a property rental business, a “withholding tax” scheme exists. Lettings agents are obliged to deduct from net rents an amount of tax and send it quarterly to H.M. Revenue & Customs (HMRC). The amount on which the tax calculation is made is normally the gross rent less the agent’s fees and any other allowable expenses such as maintenance. The rate of tax is the basic rate (see Personal tax rates). Where there is no letting agent, the tenant is obliged to operate the scheme unless the passing rent is below £100 per week.
The tax deducted by the agent is a payment on account and will be credited to the landlord’s account when a UK Tax Return is filed. The tax deducted by the letting agent will normally be more than the liability determined when we prepare your UK Tax Return. This is because the agent knows nothing of allowable expenses you may have incurred and which did not pass through their account, and because the agent is not allowed to take into account the reliefs and allowances to which you are entitled. A non-resident landlord MUST file a UK Tax Return because the law says so, and because the tax payable is generally less than the amount deducted by the agent if you don’t.
An application may be made to HMRC for the rent to be paid to the landlord without deduction of tax. This will be granted as long as the non-resident taxpayer’s taxation affairs are up to date and maintained up to date. If they fall into arrears, the permission to receive rent gross will be withdrawn. If granted, this permission does not mean that the income is not subject to tax. The form to be used for the application is one of the “NRL” series.