The Non-Resident Landlord Scheme is not a Making Tax Digital exemption

The assumption that leaves the obligation unmet

There is a comfortable assumption among landlords who live abroad and let UK property through an agent: that because the agent already deducts tax from the rent and hands it to HMRC, the new digital-reporting regime cannot also apply to them. The tax is being paid, the reasoning goes, so there is nothing further to report. The assumption is wrong, and it is the kind of wrong that is only discovered when a filing has already been missed.

The error is a category error. The Non-Resident Landlord Scheme and Making Tax Digital for Income Tax are not two versions of the same obligation, one of which can stand in for the other. One is a mechanism for collecting tax in advance. The other is a method for reporting income. They sit at different points in the process, they are operated by different people, and satisfying the first does nothing to discharge the second. A landlord who treats the agent's deduction as an answer to Making Tax Digital has answered the wrong regime.

This note sets out what each regime actually does, why withholding at source leaves the digital obligation exactly where it was, and what genuinely defers a non-resident landlord from Making Tax Digital, which is a different thing again.

What the Non-Resident Landlord Scheme is

The Non-Resident Landlord Scheme, in the Taxation of Income from Land (Non-residents) Regulations 1995 and section 971 of the Income Tax Act 2007, exists to collect UK tax on the rent of a landlord who lives abroad, by taking it at source before the money reaches them.

The mechanics are specific. A landlord who lives abroad for more than six months of the year must pay UK tax on their UK rental income, and the scheme collects it as follows. A UK letting agent must operate the scheme however much rent they handle, and a tenant who pays more than £100 a week must operate it where the landlord lives abroad and there is no agent. The agent or tenant deducts tax at the basic rate of 20% from the net rent, meaning the rent after deductible expenses paid in the quarter, pays it to HMRC within 30 days of each quarter end, reports annually on form NRLY, and gives the landlord a certificate on form NRL6. Where the property is jointly owned, the deduction is worked out on each owner's share.

There is one important variation. A landlord can apply to HMRC for approval to receive the rent with no tax deducted, and where HMRC gives that approval in writing the agent or tenant pays the rent gross. This does not remove the landlord from UK tax; it simply moves the point at which the tax is paid from source deduction to the landlord's own Self Assessment. The scheme still requires registration and an annual report even where the rent is paid gross.

The scheme is, in short, about who pays the tax across and when. It is not about how the landlord accounts for the income to HMRC.

What Making Tax Digital is, and why the scheme does not touch it

Making Tax Digital for Income Tax is not a way of collecting tax. It is a way of reporting income. A landlord within it must keep digital records of their property income and expenses, send HMRC a quarterly update through compatible software, and make a final declaration after the year, in place of the single annual return. Whether a landlord is within it is decided by their qualifying income, the gross property and trading income tested against the threshold, and a non-resident individual with UK rental income is within its scope in the same way as a UK-resident landlord.

Nothing in that depends on how the tax is collected. The Non-Resident Landlord Scheme changes the timing and the mechanics of payment; it does not change the fact that the landlord has UK rental income that has to be reported, nor the method by which Making Tax Digital requires it to be reported. The two regimes answer different questions. The scheme answers "has the tax been paid across." Making Tax Digital answers "has the income been recorded and reported in the required way." A yes to the first is not a yes to the second.

The clinching point is that the tax deducted under the scheme is not a final tax. It is a payment on account of the landlord's liability, credited against the final figure calculated through Self Assessment, with any over-deduction refunded and any shortfall collected. Because the landlord still has to self-assess, and Making Tax Digital is simply the method by which self-assessment is now done for those in scope, the withholding cannot displace the digital obligation. It feeds into the very return that Making Tax Digital governs.

Two sets of quarters, run by two different people

Part of the confusion is that both regimes are quarterly, which makes it easy to assume they are the same quarterly thing. They are not.

Under the Non-Resident Landlord Scheme, the agent or tenant pays the tax they have withheld to HMRC within 30 days of the standard quarter ends and reports once a year on form NRLY. That is the agent's obligation, discharged with the agent's money movements, and the landlord may never touch it. Under Making Tax Digital, the landlord keeps the digital records and files the quarterly updates themselves, from their own software, on their own account. One quarterly cycle belongs to the person collecting the tax; the other belongs to the person reporting the income. A landlord who points to the agent's quarterly payments as evidence that "the quarterly reporting is handled" has confused their agent's collection duty with their own reporting duty.

What actually defers the non-resident landlord

If the scheme is not what keeps a non-resident landlord out of Making Tax Digital, something else often is, and it is worth naming so it is not confused with the withholding.

The genuine deferral comes from the SA109 residence page. A non-resident landlord whose Self Assessment return includes the SA109 page is deferred from Making Tax Digital, automatically for the 2026 to 2027 year if the page was in the 2024 to 2025 return, or on application if it was not, and the deferral lasts until at least April 2027. The mechanism, and its expiry, are set out in the guide to Making Tax Digital for the non-resident landlord. The reason the two are so often confused is that the same fact, the landlord living abroad, triggers both the Non-Resident Landlord Scheme and the SA109 deferral. But it is the residence page that defers the digital obligation, not the withholding, and being approved to receive rent gross does not change the deferral one way or the other. A landlord relying on "my agent deducts the tax" is relying on the wrong thing; if they are deferred, it is because of the residence page, and that deferral has a date on it.

Where this leaves the non-resident landlord

The position resolves cleanly once the two regimes are kept apart. The Non-Resident Landlord Scheme governs how the tax on the rent is collected, whether at source by the agent or through the landlord's own Self Assessment under a gross-payment approval. Making Tax Digital governs how the income is reported, and it applies to the landlord as an individual by reference to qualifying income, regardless of the collection route. Whether the landlord is deferred turns on the SA109 residence page, not on the scheme. And the deferral is temporary.

For a company that holds the property the analysis differs again, because a company is outside Making Tax Digital for Income Tax, though a non-resident company landlord remains within the Non-Resident Landlord Scheme and, since 6 April 2020, within UK corporation tax on its rental profits, a trade-off examined in the note on incorporating a property portfolio. And the wider UK tax position of a landlord living abroad, of which all of this forms part, is set out in UK tax when you live in Dubai.

Withholding is collection. Making Tax Digital is reporting. Paying a tax in advance has never been the same as being excused from accounting for it, and the non-resident landlord who treats the agent's deduction as an exemption has satisfied one regime while leaving the other unmet.

Frequently asked questions

Does Making Tax Digital apply if my letting agent already deducts tax?

Yes. Your agent deducting tax under the Non-Resident Landlord Scheme is a way of collecting the tax in advance, not a way of reporting your income, and Making Tax Digital for Income Tax is about reporting. If you are an individual within scope by reference to your qualifying income, you still have to keep digital records and send quarterly updates, whether or not tax is withheld from your rent at source.

What is the Non-Resident Landlord Scheme?

It is the regime under which UK tax is collected on the rent of a landlord who lives abroad. A UK letting agent, or a tenant paying more than £100 a week where there is no agent, deducts basic-rate tax at 20% from the net rent, pays it to HMRC quarterly, and reports annually on form NRLY. The landlord can apply to HMRC for approval to receive the rent gross, in which case the tax is paid through their own Self Assessment instead.

If I am approved to receive rent gross, am I outside Making Tax Digital?

No. Approval to receive rent gross only changes when and how the tax is paid, moving it from deduction at source to your own Self Assessment. It does not affect whether Making Tax Digital applies, which depends on your qualifying income and, for a non-resident, on the SA109 residence-page deferral. A gross-payment approval and the digital-reporting obligation are separate questions.

Does the tax my agent deducts count against my final bill?

Yes. The tax withheld under the Non-Resident Landlord Scheme is not a final tax; it is a payment on account, credited against the final liability calculated through your Self Assessment return, with any over-deduction refunded and any shortfall collected. Because you still have to self-assess, and Making Tax Digital is the method of self-assessment for those in scope, the withholding feeds into the return the digital regime governs rather than replacing it.

Are the NRLS quarterly payments the same as Making Tax Digital quarterly updates?

No, and they are run by different people. Under the Non-Resident Landlord Scheme the agent or tenant pays the tax they have withheld to HMRC quarterly and reports once a year on form NRLY. Under Making Tax Digital the landlord keeps digital records and files quarterly updates themselves. One cycle is the collector's; the other is the landlord's own reporting obligation, and neither discharges the other.

What actually defers a non-resident landlord from Making Tax Digital?

The SA109 residence page, not the withholding scheme. A non-resident landlord whose return includes the SA109 page is deferred from Making Tax Digital, automatically for 2026 to 2027 if the page was in the 2024 to 2025 return, or on application otherwise, until at least April 2027. The scheme and the deferral are triggered by the same fact of living abroad, which is why they are confused, but only the residence page defers the digital obligation.

Does the Non-Resident Landlord Scheme apply to companies?

Yes. The scheme applies to non-resident company landlords as well as individuals, and it continued to operate after non-resident company landlords were brought within UK corporation tax on their UK rental profits from 6 April 2020. Making Tax Digital for Income Tax, by contrast, applies to individuals, so a company is outside that regime even though it remains within the Non-Resident Landlord Scheme and within corporation tax.

Do I still file a Self Assessment return if tax is deducted at source?

Yes. Tax deducted under the Non-Resident Landlord Scheme is collected in advance and set against your final liability, but you remain responsible for reporting your rental income and settling the correct amount through Self Assessment. For those within Making Tax Digital, that self-assessment is done through digital records, quarterly updates and a final declaration, so deduction at source does not remove the filing.