Non-resident Landlord scheme and 6 months rule?

by Readers Question

14:24 PM, 23rd November 2020
About 2 months ago

Non-resident Landlord scheme and 6 months rule?

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Non-resident Landlord scheme and 6 months rule?

Hi everyone. I’ve been reading some conflicting advice about people who have lodgers and go away for a few months (fixed-term stay somewhere say for a summer job, less than a year, definitely not “moved out”, all belongings still in main home and room kept free).

Some people say it’s fine and that the six-month rule is only a guideline and not fixed in law – including HMRC’s own website – and some say it’s super strict.

Any legal people here to advise?

I rang HMRC and the council property department to ask them, and they seemed to think it was fine, but I don’t have that in writing.

Thank you

Josh

Editor Note:

see >> https://www.gov.uk/guidance/paying-tax-on-rent-to-landlords-abroad

A landlord who lives abroad for more than 6 months of the year must pay tax on any income they get from renting out property in the UK. If the landlord is a company or trustee, the rules about their usual place of abode apply.

The tax is collected using the Non-resident Landlord Scheme.

Who needs to use the scheme

You will need to deduct tax from rent if you are:

  • a letting agent
  • a tenant who pays over £100 a week in rent and whose landlord lives abroad

If you’re a letting agent you must operate the Non-resident Landlord Scheme no matter how much rent you collect, unless HMRC has told you in writing that the landlord can receive the rent with no tax deducted.

If the landlord is a joint owner, tax is paid on their own share of rental income.

You’re considered a letting agent under the scheme if you:

  • help the landlord run their UK rental business
  • receive their rent or control where it goes
  • live in the UK for more than 6 months a year

A letting agent can be an estate agent, solicitor, accountant or friend of the landlord. You’re not a letting agent if you only give a landlord legal advice or services.

Rental income can include money received for a wide variety of things such as:

  • letting furnished, unfurnished, commercial and domestic premises or land
  • use of the furniture in a rented property
  • the grant of certain leases
  • sporting rights, such as fishing and shooting permits
  • allowing waste to be buried or stored on land
  • allowing others to use the property – for example, where a film crew pays to film inside a person’s house
  • grants to help with allowable expenses, such as repairs
  • enterprise investment schemes
  • caravans or houseboats that are not moved around
  • insurance policies for non-payment of rent
  • service charges

What you need to do if you’re a tenant

You need to register with HMRC for the Non-resident Landlord Scheme and deduct tax from your rent.

You will need to provide your:

  • own name
  • address
  • landlords address

You also need to register with HMRC if you pay a UK representative of your landlord, such as a friend or family member, who isn’t a letting agent.

You don’t need to deduct the tax if HMRC has told you in writing that the landlord can receive the rent with no tax deducted, but you must still register with HMRC and complete an annual report.

What you need to do if you’re a letting agent

You must operate the Non-resident Landlord Scheme regardless of how much rent you collect unless HMRC has told you that the landlord can receive the rent with no tax deducted. You may still need to register and complete an annual report.

You need to complete form NRL4i to register for the scheme

Tenant-finders

If you’re a tenant-finder you don’t have to pay tax under the Non-resident Landlord Scheme if you collect your own fee for finding a tenant from rent payments and:

  • rent is collected for no more than 3 months
  • the tax is no more than £100

Example 1

Janet finds a tenant for a property rented at £500 per month. She collects 2 months rent to get her fee. The tenant then pays the rent direct to the landlord. After Janet has deducted her fee and expenses, the tax due is £60 so she does not have to operate the Non-resident Landlord Scheme.

Example 2

John finds a tenant for a property rented at £2,000 a year. John collects 6 months rent from which he recovers his fee and pays insurance and repairs. The tax due on the remainder is only £20, but because John collects more than 3 months rent he must operate the Non-resident Landlord Scheme.

Working out the tax you need to pay

To work out the tax you need to pay you must add up the total rent in the 3 months, include any uncleared cheques and money you paid to someone else at the landlord’s request.

Deduct any deductible expenses you paid in the quarter to give the net rent. Multiply the net rent by the basic rate of Income Tax.

HMRC may check that you have paid the right amount and interest may be charged on late payments.

Example

Julie is a tenant who paid £1,500 rent from 30 June to 30 September. This was made up as follows:

  • £200 for plumbing repairs (expense paid by the letting agent)
  • £100 to pay off the landlord’s loan
  • £1,200 direct to her landlord

Because the plumbing repairs are a deductible expense they are not included in the calculation of the taxable amount.

The tax is paid on £1,300 at the basic rate of 20% – a payment of £260 is due to HMRC.

Julie has the right to recover this money from rent payments or other money owed to the landlord.

How to make a payment

You must send payment within 30 days of the end of each tax quarter – 30 June, 30 September, 31 December and 31 March.

When to send your reports

You must send a report each year by 5 July to HMRC and the landlord using form NRLY.

You must also provide your landlord with a certificate NRL6 each year by 5 July.

What you need to keep

You need to keep records for 4 years of:

  • rent you’ve received (or paid, if you’re a tenant), with dates and amounts
  • correspondence with the landlord if you’ve contacted them about where they usually live
  • expenses you’ve paid, with dates, amounts and descriptions of the expenses, along with copies of invoices and receipts

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Comments

Darren Peters

12:04 PM, 24th November 2020
About 2 months ago

"A landlord who lives abroad for more than 6 months of the year must pay tax on any income they get from renting out property in the UK. If the landlord is a company or trustee, the rules about their usual place of abode apply."

Is the above a continuous 6 month period or the average over the year? For example, if Josh went abroad for 4 months, came back home to the UK for a week then went abroad again for another 4 months, has he been abroad for 4 months or 8 months in HMRC's eyes?

"You will need to deduct tax from rent if you are:
a letting agent
a tenant who pays over £100 a week in rent and whose landlord lives abroad"

Josh states lodgers as opposed to tenants. If it's Josh's PPR and they are lodgers where normally £7500pa is tax free does that still drop to £5200pa (£100 per week) before disclosure is necessary?

David

17:06 PM, 24th November 2020
About 2 months ago

I am not an expert in this, but I think the HMRC rules you're quoting apply to non-resident landlords. If you're a resident landlord sharing accommodation with your lodger then provided your rental income is below the £7500 annual limit, it come under the rent a room scheme and be tax-free. If its more than that you have to pay tax whether you're in the UK or not. So the question becomes, is this still legally a lodger licence or has it become an AST by default because you moved out, (in which case its a different tax regime). On this issue there is no hard and fast rule. You would still assert that the lodger has a licence and that would have to be challenged in court and over-turned, (which probably isn't going to happen). The court case would turn on the evidence, so if you could show that this was still your PPR and your accommodation abroad was temporary and work related, you might win. You would cite evidence such as all your possessions still being there, registered to vote there, registered with a GP/dentist there etc. You couldn't be certain of the outcome, but unless your lodger or HRMC decide to challenge the lodger status, I don't think its really an issue.


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