When Should Landlords With Central London Property Use the NRL1 Form? 

When it comes to tax, life can be complicated as an overseas landlord. 

Since 1996, the Non-Resident Landlord Scheme (NRLS) has governed how overseas landlords calculate and pay tax, and these rules can sometimes be difficult to understand. A key feature is the NRL1 form, which allows you to settle tax affairs yourself, rather than being taxed ‘at source’ with the help of the letting agent or tenant. 

However, many landlords wonder what the pros and cons are, whether they should fill out this form, and what the process is for application. This article explores each of these points, so you can make the right assessment for your situation as an overseas landlord. 

What is the Non-Resident Landlord Scheme (NRLS)? 

Before considering the NRL1 form itself, it’s worth understanding where it fits in with the Non-Resident Landlords Scheme (NRLS). 

Established in 1996, the NRLS is the overall tax framework that guides how overseas landlords pay tax, whose ‘usual place of abode’ is outside the UK. Under the scheme, there are essentially two different ways of paying tax: 

1. Default NRLS rules 

These rules apply if you choose not to fill out the NRL1 form. 

Letting agents or tenants must deduct tax from your UK rental income and pay the tax to HMRC, and if there’s no agent, your tenants must withhold tax (typically at 20%) before they pay rent on to you. This is so the government can make sure that tax is paid before the money leaves the country. 

2. NRL1 Form is the “Opt-out” application 

The NRL1 form lets non-resident landlords apply to HM Revenue and Customs (HMRC) to receive their rental income without any tax deducted at source. Now, you will still need to pay tax, but it means that you are allowed to settle the tax affairs yourself rather than having an automatic deduction. 

Essentially: 

• NRLS = the mandatory tax scheme that applies to all non-resident landlords. 
• NRL1 = the voluntary application form to receive an exemption from the scheme’s default tax deduction rules. 

While you can’t escape the NRLS as a non-resident landlord, the NRL1 form lets you change how the scheme applies to you. 

What is the NRL1 Form & when should you use it? 

As explained, the NRL1 form is a UK tax application that allows individual, non-resident landlords to receive UK property income with no UK tax deducted at source. There are certain occasions when it makes sense to apply using the form: 

• You’re a landlord who lives outside the UK, typically for 6 months or more. 
• You earn rental income from property in the UK. 
• You want to receive rental payments gross instead of having tax deducted at 20% of income by letting agents or tenants. 

What tax criteria must you meet for an NRL1 application? 

The NRL1 form is an application, and as such, certain criteria must be met for it to be successful. Successful applications will allow you to receive your rent gross without it being taxed at source. These criteria must be met: 

1. Non-resident status – Your “usual place of abode” must be outside the UK. This generally means you have been out of the UK for at least six months, or live outside the UK for at least six months of the tax year. Your country of residence will be a key factor in determining this status. 
2. UK property ownership – You must receive rental income from a UK property which you own. 
3. Tax affairs must be up to date – HMRC will generally grant approval if your UK tax affairs are in order, which means being up-to-date on any existing tax obligations or having no prior UK tax liabilities. 
4. Clean tax history – Similarly, you can also make a request if you’re up to date with UK tax obligations or have never had any at all.
5. Expected tax liability – You can only apply if you don’t predict that you’ll be liable to pay UK tax in the same tax year in which the application is submitted. 

HMRC will generally approve applications after an initial check that your UK tax affairs are up to date, and you’ll still need to complete the normal, UK self assessment tax return separately. 

It’s also worth noting that if you own the rental property with a spouse, then both of you will have to make separate applications to HMRC using different NRL1 forms. 

Who is classed as a non-resident landlord under the scheme? 

Typically, HMRC consider you to be a non-resident landlord if you’re absent from the UK for 6 months or more, and this applies regardless of your nationality – even if you are a British citizen. This is different from being resident in the UK for tax purposes. Members of the armed forces or crown servants stationed abroad also fall under this criteria. 

It is possible to be treated as a non-resident landlord for the purposes of the NRLS but in fact be UK resident for other tax purposes. 

So what about for companies and trusts? 

• For companies – A company is considered ‘non-resident’ if its main office or other place of business is outside the UK, or if it’s incorporated outside the UK. Different rules may apply for corporation taxes. 
• For trusts – Trusts are regarded as outside the UK, if all the trustees have a usual place of abode outside the UK. 

Why complete an NRL1 form? 

You might be wondering what the advantages are to filling out and using an NRL1 form rather than accepting the default rate of taxation. Here are some of the reasons: 

1. Better cash flow & control 

One of the primary benefits is the ability to receive rental income without tax deductions at source. Instead of having 20% tax from your rental income deducted every quarter, you receive the full rental amount upfront and you have control over the payment of the tax. 

2. Avoid overpaying tax 

Tax is typically deducted at 20% of income, regardless of expenses or personal allowances. With NRL1 approval, you are less likely to overpay on taxes because you can properly account for allowable expenses (e.g. mortgage interest, repairs, insurance, letting agent fees), personal tax allowances and more accurate profit calculations. 

3. Financial control 

This method saves money and lets you keep cash that can be used when filing for the Self Assessment tax return. You can invest or use the full rental income throughout the year rather than waiting for a potential refund. 

4. Simpler process 

While it may seem like a pain to fill out the NRL1 form, it saves you the trouble of other complications. 

It removes liability for tenants who have to pay tax on your behalf to HMRC, or for letting agents (if they have agreed to do so). This can save on any letting agent fees which may be chargeable for processing the payments. 

When should you fill out & submit your NRL1 form? 

Ideally, submit your NRL1 form as early as possible once you become eligible, and before any rental income is due to be paid. This prevents any of the automatic 20% tax deductions from happening in the first place. 

Here are the key submission windows: 

1. When you become a non-resident landlord – Usually, if a person is away from the UK for a minimum of 6 months, their usual place of abode will be deemed to be outside of the UK and so they can apply to the non-resident landlord scheme. So, submit as soon as you meet the 6-month absence mark. 
2. Before your letting agent starts deducting tax – If you fail to deliver an NRL1 form to your letting agent or tenant, they will subtract 20% tax from your rental payments. Submit the form early to avoid any automatic, legal deductions. 
3. When you have clear tax affairs – When planning to submit the form, make sure you’re not liable for any outstanding tax payments, and that you expect to remain a non-resident landlord until the end current tax year (at least). 

After submission, it usually takes around 30 days for HMRC to process and approve (or dismiss) the application, and this is usually backdated to the start of the quarter when they received the NRL1 form. 

How to fill out an NRL1 form for overseas landlords 

Here’s a brief overview of the application process you need to follow when submitting an NRL1 form. 

1. Download the form 

Download the NRL1 form from the government website or get a physical copy from HM Revenue and Customs (HMRC). 

2. Add personal information 

Enter your personal details at the top of the form, including your full name, National Insurance number, home address, telephone number, and email address. 

You’ll have to enter your overseas address and any correspondence address too (if relevant). 

3. Complete property and income details 

Next you’ll need to complete the UK property address and type of property, along with rental income information. If you are claiming tax relief for expenses or allowances, fill out the required details. 

4. Declare, sign & send 

Review the declaration and sign and date the form, agreeing to the legal conditions within. Completing the form accurately is essential for a successful application. 

You also have the option to submit the form online or by post. 

If you want to apply online, you need a Government Gateway ID to fill out the information and submit the form electronically. You shouldn’t use the online service if you want to authorise a tax agent to act on your behalf. 

On the other hand, if you prefer to submit the application by post, you can print it out, and send it on to HMRC using the address on the form. 

5 Wait for the result 

HMRC claims to process NRL1 applications within 30 days, at which point they’ll let you know whether it is successful or not. 

Sometimes HMRC requests further information or documentation, so if they do, be prepared to send this on to them as soon as possible to avoid delays. It’s good practice to keep a copy of the submitted NRL1 form for your own records. 

And finally 

If you’re an overseas landlord who feels confused by residency rules or wants advice on your property letting situation, talk to us – whether you let property in Marylebone, Belgravia, Notting Hill or beyond. We can connect you with legal and professionals to handle your affairs, or manage your property on your behalf – so there’s a lot less for you to worry about. 

Disclaimer: This article is intended for informational purposes only and does not constitute legal advice.