The NRLS is a scheme to tax the UK rental income of persons who have a usual place of abode outside the UK – known as non – resident landlords.
The NRLS imposes obligations on the tenant or the letting agent (if there is one).
In order to understand the NRLS, it is important to understand that if you live overseas but you receive income from letting out a property in the UK, this income is generally taxable in the UK like any other UK-sourced income. This is the case regardless of whether or not you are resident or non-resident in the UK for tax purposes and regardless of where the income is physically paid.
However, as it can be difficult for HMRC to pursue individuals who live outside the UK and do not comply with their UK tax obligations, UK law seeks to collect tax on the rental income before it is paid to the overseas landlord under the NRLS. It does this by imposing on the UK letting agent an obligation to withhold tax on the rental income before it is paid to the overseas landlord. Where there is no UK letting agent, the tenant themselves must withhold tax personally if the rent they pay to the overseas landlord is more than £100 a week.
Any tax withheld by the letting agent or tenant is then available as a deduction against the overseas landlord’s UK tax liability when they complete a UK Self-Assessment tax return. The NRLS does not change whether or not the UK property income is taxable. Non-resident landlords will usually be required to file a Self-Assessment tax return, even if there is no tax to pay.