You left Britain and your letting agent started keeping 20% of the rent

Figures relate to tax year 2025-26 (UK) · 2025 (US)

You moved from London to Boston and kept the flat, letting it through the same agent you always used. The first rent statement after the move arrives noticeably lighter.

Your agent has started deducting basic rate tax before paying you, because that is what the law tells them to do once you live abroad. The landlord scheme is not a penalty, and you can usually switch the deduction off entirely. Almost nobody mentions that part.

Key takeaways

• The landlord scheme makes agents deduct 20% from rent paid to an owner living abroad.
• Where there is no agent, the tenant can be required to deduct instead.
• You can apply to HMRC to receive the rent gross, with no deduction.
• Approval does not remove the tax, only the deduction at source.
• You still file a British return and report the profit.
• America taxes the same rental profit under entirely separate rules.

What is the non-resident landlord scheme?

The landlord scheme withholds tax from rent on British property where the landlord lives outside the United Kingdom. According to HMRC guidance, the letting agent deducts basic rate tax from the rent after allowable expenses and pays it over quarterly.

It applies by reference to where you live, not to your nationality.

So the landlord scheme catches a British citizen in Boston exactly like an American one.

When does it start applying?

The landlord scheme starts once your usual place of abode moves outside Britain, which HMRC generally reads as six months away or more. The clock does not wait for a tax year boundary, so a mid-year move can trigger it straight away.

A short secondment of a few months usually does not.

Tell your agent when you move rather than letting them find out.

What if you have no letting agent?

The duty can pass to the tenant. Where rent goes directly to a landlord abroad and exceeds a modest weekly threshold, the landlord scheme asks the tenant to deduct and account for the tax, which almost none of them know.

That puts a private tenant in an awkward and unfamiliar position.

Approval to receive gross rent removes the problem for both of you.

A worked example

The figures below are illustrative and use round numbers to show the mechanics.

Hannah moves to Chicago and lets her Leeds flat for £1,500 a month through an agent. Allowable expenses run to about £300 a month.

Without approval, the agent deducts 20% of the £1,200 net figure, so roughly £240 a month never reaches her. Across a year that is £2,880 sitting with HMRC.

Her actual liability turns out lower once mortgage interest relief and the personal allowance come in, so she waits until her return to recover the difference. Approval would have left the cash with her all year.

How do you stop the deduction?

You apply to HMRC for approval to receive the rent gross. The application asks for your details, your British tax reference and your agent. Approval depends on your tax affairs staying current and your returns going in on time.

HMRC writes to you and to your agent once it approves the application.

The agent stops deducting from the next quarter, not retrospectively.

The two routes compared

Does approval mean the rent is tax free?

No, and this is the most common misunderstanding. Approval changes only the timing, letting you receive the rent in full and settle the tax through your return rather than having it taken in advance.

The profit remains taxable in Britain in the ordinary way.

Our guide to UK rental income on a US return covers the figures.

Which expenses can the agent deduct?

Only the ones they actually pay on your behalf, such as repairs, management fees and insurance they arrange. Mortgage interest sits outside the calculation because the agent does not pay it.

That is why the deducted amount usually exceeds the real liability.

Send them invoices promptly, since anything they have not seen cannot reduce the deduction.

The difference comes back through the return, but slowly.

What does America want?

The rental profit, calculated under its own rules, which differ from the British ones in several places. Depreciation is mandatory rather than optional, and the treatment of mortgage interest and capital items is not the same.

British tax paid generally credits against the American charge.

Keep one set of records and produce two calculations from it, rather than two sets.

So the two returns rarely show the same profit figure at all.

How to apply

1. Confirm your usual place of abode is now outside Britain.
2. Tell your letting agent about the move in writing.
3. Make sure any outstanding British returns are filed.
4. Apply to HMRC for approval to receive the rent gross.
5. Give your agent the approval letter when it arrives.
6. Register for self assessment if you are not already in it.
7. Set the rental figures up separately for the American return.

What if your tax affairs are behind?

Approval is unlikely until they are current, because HMRC treats the application as a compliance checkpoint. Filing the outstanding returns first is usually faster than appealing a refusal, and you need those returns for the American side regardless.

The American side needs the same returns anyway.

Our guide to registering for self assessment covers getting into the system.

Does joint ownership change anything?

Each owner applies separately, so a couple needs two applications and gets two approvals. Where one of you still lives in Britain, only the one living abroad falls inside the scheme.

The agent then deducts from one share and not the other.

Keep the split consistent across both countries, since America looks at beneficial ownership too.

Tell them clearly how the ownership splits.

What happens when you move back?

The scheme stops applying once your usual home is in Britain again. Tell HMRC and your agent, because an approval left running after your return is simply out of date rather than harmful.

Your rental profit then goes on an ordinary resident return.

Write to both on the same day. One letter each saves a quarter of wrong deductions.

The American obligation continues if you remain a citizen.

Does it apply to a holiday let?

Yes, where somebody pays you rent for British property while you live abroad. The type of letting matters less than the fact that rent crosses a border to reach you.

Short term platforms complicate who counts as the agent.

Our guide to UK holiday lets and US tax covers that market.

What records should you keep?

The agent statements showing rent and any tax deducted, your expense invoices, and the approval letter once it arrives. Those three sets between them answer almost every question either country is likely to ask you.

Keep the mortgage interest certificates as well.

They never reach the agent, so only you can produce them.

How long does approval take?

Usually a few weeks once your filings are current, though it can run longer in busy periods. The deduction continues until the agent has the letter, so applying early is worth real money.

There is no backdating to the date you applied.

Apply as soon as the move is settled rather than waiting for a rent statement.

Anything deducted in the meantime comes back through the return instead.

Does the mortgage still get relief?

Yes, through the restricted relief that applies to all residential landlords, which gives a basic rate credit rather than a full deduction. Living abroad changes nothing about how that works.

But the agent cannot apply it when they deduct.

So the relief only shows up when you file.

Do you still get the personal allowance?

Many people do, including British and American citizens, which often means the first slice of rental profit carries no British tax at all. The agent deduction ignores the allowance completely when they work out what to withhold.

That alone can make the withheld amount far larger than the real bill.

It is the strongest practical argument for getting approval early.

What happens if you sell the property?

A separate set of rules takes over, with a short reporting window for disposals of British residential property by somebody living abroad. The landlord scheme itself simply stops when the letting ends.

America taxes the gain under its own calculation too.

Our guide to US property for UK residents covers the mirror case.

Can an agent refuse to stop deducting?

Not once they hold the approval letter, because the letter instructs them directly. Before it arrives they have no choice at all, since the duty sits on them personally and they carry the risk.

Chase them with a copy if the deduction continues.

Most agents handle this routinely and need only the paperwork.

What if you own through a company?

A non-resident company letting British property follows its own corporation tax rules rather than this scheme, though the withholding can still apply to the rent it receives. The structure changes the filing more than the deduction.

An American owner of that company has their own reporting on top.

Our guide to Form 5471 categories covers that layer.

Does it affect your US credit claim?

Only through timing. The credit follows British tax you actually paid for the year, and tax withheld during the year counts once the British liability settles. A large refund later can unwind part of an earlier claim.

So approval makes the credit cleaner as well as the cash flow.

Match the two years carefully where a refund straddles them.

What if the property runs at a loss?

Britain carries the loss forward against future rental profits from the same business, and the agent still deducts from rent received regardless. America handles losses under its own rules, which can differ sharply.

A loss year makes approval more valuable, not less.

Without it you fund HMRC while making no profit at all.

Mistakes and penalties we see with the landlord scheme

The first is never applying for landlord scheme approval. Most landlords simply accept the deduction for years.

The second is not telling the agent about the move. They are the ones with the legal duty.

The third is assuming approval ends the British filing. It does not.

The fourth is reporting the British profit figure on the American return. The two calculations differ.

How US UK Tax Accountants helps

We get the approval application in, bring any outstanding returns up to date so HMRC grants it, and prepare both the British and American rental figures from the same records. Then we set the credit against the American charge.

Where an agent deducted tax for years, we recover it. Our UK self assessment service covers the British filing.

If you kept a British property after moving, get in touch. Approval takes weeks and the deduction stops the moment it arrives.

Last reviewed 1 October 2026. This article is general information and not personal tax advice. Every letting turns on its own facts, so take advice on yours before applying.