What is the NRL1 Form: A Guide for Overseas Landlords

What is the NRL1 Form: A Guide for Overseas Landlords

The NRL1 form is a declaration that overseas landlords can complete to receive rental income without tax being deducted. If you are an overseas landlord with UK property, or looking to invest in the UK. It’s important to understand the NRL1 Form and how it can impact your rental income.

Understanding the NRL1 Form

As a non-resident for UK tax purposes, you are only subject to UK tax on 'UK sourced' income. This includes rental income earned from properties in the UK. Generally landlords declare and pay income tax via the UK Self-Assessment tax return however overseas landlords may have tax deducted from rental income unless an NRL1 form has been filed. This can be helpful, as tax is usually deducted at the basic rate without expenses or allowances being taken into account.

What is an NRL1 Form?

The NRL1 form tells HMRC that you want your UK rental income paid without deduction of UK tax. Typically, letting agents or tenants deduct tax when they pay rent to a non-resident landlord. You can apply for an NRL1 Form online or via post. Please note, to apply online you will need a UK Government Gateway ID, so non-resident landlords must often use the post option.

Why do overseas landlords need to fill out an NRL1 Form?

Overseas landlords who receive rental income from UK properties often find themselves paying more tax than they need to. This is because tax is typically deducted at 20% of their income, regardless of expenses or personal allowances. However, the NRL1 Form provides a solution for this problem.

By completing the form, non-UK resident landlords can inform HMRC that they want their UK rental income paid without any deduction of UK tax. This saves landlords money and allows them to keep cash that can be used when filing their Self Assessment tax return.

What information is required for the NRL1 Form

Applying for an NRL1 Form is a straightforward process that requires landlords to provide detailed information about their rental income and tax status in their home country. Landlords can complete the application process online or by mail, and must provide proof of their identity and address.

In addition, landlords must also provide information about their managing or letting agent, if applicable, as well as any other sources of UK income. It is essential to ensure that all the necessary details are correctly provided on the form to avoid delays or rejection.

Also read: How Do I Claim UK Tax Back from Overseas?

How to submit the NRL1 Form

Submitting the NRL1 Form is a simple process that can be done online or through the post. If you've lived in the UK before and have a Government Gateway ID, you can apply online, fill out the required information and submit it electronically. However, for those who have never lived in the UK before, they can complete an online form, print it out and send it to HMRC via post.

After submission, it usually takes around 30 days for HMRC to process and approve the application. It's important to note that applicants don't require a UTR number to apply. If you don't have one already, HMRC will create a Self Assessment record for you and provide you with a UTR.

Example Scenario: John is an Australian landlord with property in London who receives £15,000 annually in rental income; normally, 20% or £3,000 of this would be withheld as taxes; by successfully submitting an NRL1 form, however, all his rental income would remain intact without deductions or offsets.

Also read: Obtaining a UTR For HMRC From Abroad

How to apply for the NRL1 form

Applying for the NRL1 form is relatively simple and can be done via web application or by post. Here's how it's done:

1. Gather All Relevant Information: Gather all the necessary information about your rental property and identification information, as well as any letting agents.

2. Completing the NRL1 Form: Fill out the NRL1 form completely with the correct information.

3. Application by Post: If you have a Government Gateway ID and have ever lived in the UK, please sign in first before you apply electronically.

4. Complete Paper Form: Complete a paper form, print it out, and send your application to HMRC. Do this if you've never lived in the UK or just prefer this option.

5. Approve the Application: Within 30 days after submission, that's usually when HMRC processes and approves your application.

6. Notification from HMRC: Once the application is approved, HMRC will send you and your letting agent or tenant a notification of your status as a non-resident landlord.

Tax liabilities under the NRL scheme

Under the NRL scheme, rental income from UK residential properties owned by non-resident landlords is taxable in the UK. Tenants or letting agents must deduct 20% tax from the rent and send it to HMRC. This ensures the tax is paid.

Non-resident landlords can apply to HMRC for approval to receive rental income without tax deductions. To qualify, landlords must ensure their UK tax affairs are up to date and free of any unpaid tax. Once HMRC approves, they will notify the tenant or letting agent, allowing rent to be paid directly to the landlord without deductions.

Compliance and reporting

Landlords approved to receive gross rent are still not exempt from UK tax on that income. They must include it in their annual self-assessment tax return. They are also required to keep a record of all rental income and any allowable expenses that can be claimed and deducted when calculating their tax.

NRLS for different types of entities

The NRLS applies to several types of landlords:

Individuals: Individual owners who have property in the UK but live somewhere else.

Companies: Company formations with UK property but have their headquarters located somewhere else outside of the UK.

Trustees: A trust that owns UK property, but its assets are managed by a trustee who resides elsewhere.

Partnerships: Partnership formation that has investments in UK property but whose base resides somewhere else.

Example scenario: special cases under the NRLS

Let's say Mark and Olivia jointly own a rental property in the UK. Under the NRLS, even though they co-own the property, they are treated as separate landlords. This means both Mark and Olivia must each file a separate application to receive relief from tax adjustments on their rental income.

Additionally, the NRLS has special rules for payments made by cheque. If their tenant pays the rent via cheque, the income will be considered received on the day the cheque is deposited or mailed, not when it clears in the bank. So, if Mark deposits the cheque on the 1st of the month and Olivia deposits it on the 3rd, the rental income is considered received based on those dates, not the clearance date.

International tax considerations

Non-resident landlords can also face tax liabilities in their home country, which can lead to double taxation (tax being paid both in the UK and in their country of residence). However, double taxation can be avoided in certain cases.

Many countries have double taxation agreements with the UK, which allow landlords to offset the tax paid in one country as a credit against their tax liabilities in the other country. This helps reduce the risk of being taxed twice on the same income.

Bottom line

Filling out the NRL1 form correctly is important for overseas landlords to make sure they get the most out of their rental income and avoid unnecessary tax deductions. By doing this, you'll meet all your obligations and be able to enjoy your investment in UK properties while staying within HMRC rules.

Need help with your taxes? Get expert guidance from Taxd today!

FAQs

1. What happens if I do not submit an NRL1 form?

If you fail to deliver an NRL1 form to your letting agent or tenant, they will subtract 20% tax from your rental payments so that you receive after-tax.

2. How long does HMRC take to process my NRL1 application?

In most cases, HMRC takes approximately 30 days to process a lodged NRL1 application.

3. Do I qualify for an NRL1 form if I have never stayed in the UK?

Yes, you can apply, but even if you have never lived in the UK, you should post your application if you do not have a Government Gateway ID.

4. Do I need a UTR number to apply?

No, you don't require a UTR number to apply for an NRL1 form because HMRC will provide you with one if necessary.

5. What happens if my application is refused?

If your application is refused, HMRC will send a notice with an explanation of why; you may appeal within 90 days of the date of receiving the notice.