The Non-Resident Landlord Scheme when you change letting agent
Owners abroad who switch agent are often surprised when the first statement from the new agent arrives 20% short. It's usually the Non-Resident Landlord Scheme, and it can be avoided with a little planning. Here's what changes when your agent does.
- A letting agent must deduct basic-rate tax (20%) from your rent unless HMRC has told that agent in writing that you can receive it with no tax deducted.
- When HMRC approves you, it tells you and authorises your agent or tenant at the time. A new agent needs that written authorisation too, so arrange it before the switch.
- If you've never applied, the switch is a good moment to do it, on form NRL1.
- If both agents deducted tax in the same year, expect a certificate (NRL6) from each, and keep both for your tax return.
If the scheme itself is new to you, start with the Non-Resident Landlord Scheme, explained for owners abroad.
Why the 20% can appear after a switch
Under the scheme, anyone who collects your UK rent as your agent while living in the UK has to deduct tax from it, whatever the rent, unless HMRC has told them in writing that you're approved to receive it gross. HMRC's own guidance says that when it approves an application it tells the landlord and authorises the landlord's letting agent or tenant. So the authorisation sits with whoever was collecting your rent when you were approved.
A new agent hasn't had that letter. Until they do, they're required to deduct. The tax isn't lost, because it counts towards your UK tax bill when you file Self Assessment and any excess is repaid, but it can mean months of rent arriving 20% short.
Before you switch: three steps
- Find your approval. Look for HMRC's letter confirming you can receive rent with no tax deducted, and the reference on it. Your current agent will have one too, and their statements should show no tax being withheld.
- Ask HMRC how the new agent gets authorised. Call the Non-Resident Landlord helpline on +44 300 322 9433 (0300 322 9433 from the UK) with your reference and the new agent's details, and ask what they need from you. Do this as soon as you've given notice, not in the last week.
- Tell the new agent. Give them your reference and ask them to confirm, before the first payment, whether they've had HMRC's written authorisation. If they haven't, you'll know why the first statement is short.
Not approved yet? Apply on form NRL1 (individuals; NRL2 for companies, NRL3 for trustees). HMRC usually approves you if your UK tax affairs are up to date, you've had no UK tax obligations before, or you don't expect to owe UK tax for the year. Its manual says approval is generally backdated to the start of the quarter in which it receives the application.
Don't let the rent go direct, even for a month
If there's a gap between agents and your tenant pays you directly, the scheme can apply to the tenant: a tenant paying more than £100 a week to a landlord abroad must deduct the tax unless HMRC has told them in writing not to. Most tenants don't know this. Align the old agent's end date with the new agent's start date so there's no gap. A notice period calculator helps you pick that date.
The quarter and the paperwork
The scheme runs on its own year, starting 1 April, with quarters ending 30 June, 30 September, 31 December and 31 March. An agent who deducted tax pays it to HMRC within 30 days of each quarter end, and by 5 July sends HMRC an annual return and gives you an NRL6 certificate showing the tax deducted.
- Two agents, two certificates. If both agents deducted tax in the same scheme year, you should get an NRL6 from each, covering the part of the year they acted. Ask your old agent to confirm they'll send theirs.
- Switching at a quarter end keeps each quarter with one agent, which can make the records simpler. It isn't required.
- Keep the final statement. It shows the rent collected, the fees and any tax deducted up to the switch, which you'll need for Self Assessment.
A checklist
- HMRC approval letter and reference found, or NRL1 sent.
- HMRC helpline called; you know what the new agent needs.
- New agent has your reference and has confirmed whether HMRC's authorisation has arrived.
- No gap between agents, so the tenant never pays you directly.
- Old agent's final statement received, and NRL6 promised by 5 July if they deducted tax.
- First statement from the new agent checked for a 20% deduction.
The rest of the handover (documents, deposit, the letter to your tenant) is in how to switch letting agent when you live abroad. Running the scheme is planned to be part of Flatward's flat fee, with no separate charge for it.
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