UK Non-Resident Landlord Scheme: Withholding, Deductions, and Filing

If you live abroad and rent out property in the United Kingdom, the UK Non-Resident Landlord Scheme requires your letting agent or tenant to withhold basic rate tax (currently 20%) from your rental income and send it to HM Revenue and Customs before you receive the balance. You can apply to receive your rent in full without deductions, but only if HMRC is satisfied your UK tax affairs are up to date. The scheme catches individuals, companies, and partnerships, regardless of nationality or how long the property has been owned.

Who the Scheme Applies To

You fall under the scheme if your “usual place of abode” is outside the UK. For individuals, HMRC treats an absence from the UK of six months or more as meeting that threshold.¹ This is a simpler test than the statutory residence test used elsewhere in UK tax. A UK mailing address or occasional visits to the property don’t change the answer; the six-month benchmark is what counts.

A company is treated as non-resident if its main office or place of business is outside the UK, or if it was incorporated outside the UK.¹ Partnerships where any partner lives abroad are caught for that partner’s share of the income.

Where a property is jointly owned by spouses or civil partners and only one lives outside the UK, the scheme applies only to the non-resident’s share of the rent. The UK-resident spouse does not need HMRC approval to receive their portion gross, though they must still notify HMRC of the property income. Each spouse is treated as a separate landlord for scheme purposes.¹

How the 20% Withholding Works

Your letting agent or tenant acts as a withholding agent. They deduct basic rate tax from your rental income after subtracting any allowable expenses they have paid on your behalf, then send the tax to HMRC and pass the remainder to you.² Deductible expenses at this stage typically include property repairs, insurance premiums, and management fees the agent has covered directly.

Professional letting agents must operate the withholding regardless of the rent amount. Individual tenants face a different rule: if you pay your landlord £100 a week or less, you don’t need to operate the scheme unless HMRC specifically tells you to.¹ Above £100 a week, the tenant becomes responsible for withholding.²

An agent or tenant who fails to operate the scheme when required becomes personally liable for the unpaid tax. HMRC can charge penalties of up to £3,000 for incorrect quarterly or annual returns, plus £300 for failing to provide requested information and £60 per day if the failure continues.³ Late payment currently attracts interest at 7.75% as of January 2026.⁴

After the tax year ends, your agent must give you a certificate of tax deducted on form NRL6 by 5 July. This is your proof of the tax withheld and paid on your behalf, and you’ll need it when you file your Self Assessment return.

Applying to Receive Rent Without Deductions

You can apply to receive your full rental income with no tax withheld at source. HMRC grants approval if your UK tax affairs are fully up to date, or if you do not expect to owe UK tax. The application asks for your Unique Taxpayer Reference (if known), your National Insurance number (if you have one), your current overseas address, and the date you left the UK.⁵

The right form depends on how you own the property:

Once HMRC approves the application, they send a separate notice to your letting agent or tenant authorising them to pay your rent gross.⁵ Receiving gross rent does not remove your obligation to file a return and pay any tax due. It simply shifts the timing so you pay directly rather than through withholding.

When HMRC Can Withdraw Approval

Gross payment approval is not permanent. HMRC can withdraw it if they no longer believe the information in your application was correct, if they think you won’t meet your UK tax obligations, or if you fail to provide information they’ve requested. If approval is withdrawn, HMRC tells you and your agent, explaining the reason and the date from which withholding must resume. You can appeal in writing within 90 days, and unresolved disputes go to an independent tax tribunal.¹

You Still File a Self Assessment Return

Even if tax has been withheld throughout the year, you must file a Self Assessment tax return. The amount on your NRL6 certificate goes on the UK property pages and counts as a credit against your total tax bill. If the withheld amount exceeds what you actually owe (because your allowable expenses reduced your taxable profit below what the flat 20% withholding assumed), you can claim the difference back.

Filing is required whether or not you have gross payment approval. The deadline is 31 January following the end of the tax year, so 31 January 2028 for the 2026–27 tax year. Self Assessment also lets you claim deductible expenses your agent didn’t account for during withholding, so your final tax bill reflects your actual costs.⁷

You must register for Self Assessment by 5 October following the tax year in which you first received rental income. A late return then triggers an immediate £100 penalty, daily charges of £10 per day after three months (up to £900), 5% of the tax due or £300 (whichever is greater) at six months, and another 5% or £300 at twelve months.⁷ Retain your records for at least 22 months after the end of the tax year if you file on time, or 15 months after submission if you file late.⁸

What You Can Deduct

HMRC allows deductions for costs that are “wholly and exclusively” for the purpose of renting out the property.⁹ Common allowable costs include repairs and maintenance, landlord insurance, agent and management fees, water rates and council tax (if you pay them rather than the tenant), accountants’ fees and legal costs for leases of a year or less, ground rent and service charges, and advertising for new tenants.

Repairs Versus Improvements

Only repairs and maintenance are deductible; the cost of improvements or enhancements is not.⁹ The line turns on whether the work restores the property to its previous condition or makes it better. Replacing old wooden window frames with modern double glazing is generally an allowable repair because the functionality and character stay broadly the same. If the new materials are designed to provide greater capacity or performance, the entire cost becomes capital expenditure.¹⁰

Costs can be apportioned on a reasonable basis where work involves both repair and improvement elements. Extensive alterations amounting to a reconstruction are always capital. And if you buy a property in poor condition and carry out repairs shortly after acquisition, HMRC will likely treat those initial repair costs as capital rather than revenue, especially where the purchase price was reduced because of the property’s state.¹⁰

Replacing Furniture and Appliances

If you let a furnished property and replace a domestic item such as a sofa, washing machine, or set of curtains, you can claim replacement of domestic items relief. The deduction is the cost of the new item, reduced by anything you received for the old one. If the replacement is a significant upgrade, the deduction is limited to what a like-for-like replacement would have cost.¹¹ Fixtures built into the property, such as fitted kitchens and bathroom suites, don’t count as domestic items under this relief.

Mortgage Interest Is No Longer a Straight Deduction

Individual landlords cannot deduct mortgage interest or other finance costs as an expense against rental income. Since the 2020–21 tax year, these costs have been fully restricted. Instead you receive a basic rate tax reduction equal to 20% of the lower of your finance costs, your property business profits, or your adjusted total income.¹² In practice, higher-rate taxpayers now pay more tax on rental income than under the old system. Excess finance costs that can’t be relieved in the current year carry forward.

This restriction does not apply to non-resident companies, which deduct finance costs under normal corporation tax rules.

Non-Resident Companies Pay Corporation Tax

Since 6 April 2020, non-UK resident companies earning rental income from UK property pay corporation tax on those profits rather than income tax.¹³ The scheme’s 20% withholding still runs in the background, but the final liability is settled through corporation tax.

If your company’s corporation tax liability is fully offset by the tax already withheld and you have no chargeable gains, you may not need to notify HMRC of chargeability or file a return.¹³ If you apply for gross payment status using form NRL2, approval triggers automatic corporation tax registration and you become liable to file returns from the date approval takes effect.⁶

Capital Gains Tax When You Sell

Non-residents who sell UK residential property pay Capital Gains Tax on any profit. For 2026–27, the rates are 18% for gains within the basic rate band and 24% above it. Non-residents receive the same annual exempt amount as UK residents, £3,000 for 2026–27.¹⁴

The reporting window is tight. You must report the disposal and pay any tax due within 60 days of the completion date using HMRC’s Capital Gains Tax on UK property account online service.¹⁵ This catches many non-resident sellers off guard, especially those used to jurisdictions where capital gains sit on the annual return. Missing the window means interest and penalties on top of the tax. You still include the gain on your Self Assessment return for the year, and any tax paid within the 60-day window counts as a credit.

If You’re a US Taxpayer

US citizens and residents report worldwide income to the IRS, including UK rental income. The US-UK double taxation convention lets you claim a credit against your US tax for UK income tax paid or accrued, so the same rental profits shouldn’t be taxed in full by both countries.¹⁶

You claim the credit on IRS Form 1116, categorising UK rental income as passive category income. If your total creditable foreign taxes for the year are $300 or less ($600 filing jointly), your foreign source income is all passive category, and it was reported on a qualifying payee statement, you may be able to claim the credit on your return without filing Form 1116.¹⁷

One subtlety: the foreign tax credit is limited to the UK tax you legally owe. If you could have claimed a refund from HMRC because your UK expenses cut the taxable profit well below the withholding, the IRS won’t let you take credit for the full amount withheld. Sort out the UK refund first, then claim credit for the net UK tax actually due.

1
GOV.UK. What the Non-Resident Landlords Scheme Is
2
GOV.UK. Tax on Your UK Income if You Live Abroad – Rental Income
3
GOV.UK. Record Keeping for the Non-Resident Landlords Scheme
4
GOV.UK. HMRC Interest Rates for Late and Early Payments
5
GOV.UK. Apply as an Individual to Receive UK Rental Income Without UK Tax Deducted
6
GOV.UK. Apply as a Company to Receive UK Rental Income With No UK Tax Deducted
7
GOV.UK. Self Assessment Tax Returns – Penalties
8
GOV.UK. Keeping Your Pay and Tax Records
9
GOV.UK. Work Out Your Rental Income When You Let Property
10
GOV.UK. Property Income Manual – PIM2030
11
GOV.UK. Property Income Manual – PIM3210 – Furnished Lettings: Replacement of Domestic Items Relief
12
GOV.UK. Restricting Finance Cost Relief for Individual Landlords
13
GOV.UK. Paying Corporation Tax if You’re a Non-Resident Company Landlord
14
GOV.UK. Capital Gains Tax Rates and Allowances
15
GOV.UK. Tell HMRC About Capital Gains Tax on UK Property or Land if You’re Not a UK Resident
16
GOV.UK. United States – United Kingdom Double Taxation Convention
17
Internal Revenue Service. Instructions for Form 1116