You apply to HMRC on form NRL1 if you are an individual. If HMRC approves, it notifies your letting agent directly and the agent stops deducting tax from your rent from that point. Approval does not reduce your tax. It moves the timing, so that you account for the tax through your own return instead of having it withheld at source. HMRC grants approval where the application is complete and it is satisfied you will meet your UK tax obligations.
What HMRC is deciding
Not whether you owe tax, but whether you can be trusted to pay it yourself. In practice that means HMRC looks at whether your UK tax affairs are up to date, whether you have a UK tax reference, and whether returns and payments have been made when due.
A landlord with a clean record and an accountant usually succeeds. A landlord with outstanding returns usually does not, and applying before those are dealt with tends to draw attention to them.
What changes on approval, and what does not
Your agent stops deducting, and stops from the date HMRC notifies them rather than the date you applied. Any tax already deducted stays deducted and is credited on your return.
Your liability is unchanged. You still declare the rental income, still claim the expenses, and still pay whatever is due. What you gain is cash flow and simplicity, which for a landlord with a mortgage to service on the property is not a small thing.
Our quarterly submission charge falls away with the obligation, because there is nothing left to submit.
Joint owners, companies and trustees
Each individual applies separately. Joint owners are treated individually, so one owner may be approved and the other not, and the agent then deducts on the unapproved share only.
Companies and trustees use their own forms rather than the NRL1. If the property is held through a company, say so at the outset, because the position and the paperwork differ.
Practical points worth knowing before you apply
Approval is not permanent. HMRC can withdraw it, and it does so where obligations stop being met, at which point the agent must resume deducting.
Being the named agent on the application is part of what a good agent does for you, because HMRC corresponds with the agent as well as with you. We will help with the application and we will tell you honestly if we think it is premature.
Questions we are asked
Which form do I use?
Form NRL1 if you are an individual. Companies and trustees use their own equivalents, so tell us how the property is held before you start.
Does approval mean I pay no UK tax on the rent?
No. It changes when you pay rather than whether you pay. You account for the tax through your own return instead of having it deducted at source.
When does my agent stop deducting?
From the date HMRC notifies the agent, not the date you applied. Tax already deducted is credited on your return.
Can HMRC withdraw approval?
Yes, where your obligations stop being met, and the agent must then resume deducting.
We own the property jointly. Do we apply together?
No. Each owner applies separately and is considered separately, so the agent may end up deducting on one share and not the other.
Sources
HMRC, Apply as an individual to receive UK rental income without UK tax deducted
HMRC, Non-resident Landlords Scheme guidance notes
General information about the law and practice in England. Not tax advice or legal advice.
