Taxman Writes to Tenants with Offshore Landlords

HMRC are sending tax compliance letters to tenants of residential property owned by non-resident corporate landlords.

HMRC are now following up the information they have about UK residential properties which are owned by non-resident companies. They are writing to the tenants of such properties, demanding information about the landlords, and reminding the tenants that they may have to deduct tax directly (and pay it over to HMRC) before paying the net rent to the landlord.

The HM Revenue and Customs letters include a form asking the tenants for information about the property e.g. if it is owned by a trust and, if so, the date it was acquired, and details about the trustees, settlors, and beneficiaries. The taxman says that the letter and questionnaire are designed to gather information to ensure the correct tax is paid.

The letter goes on to say that tenants may have to deduct tax off their own rental payments to ensure the correct tax is paid – if their landlord is not resident in the UK and is not registered under the UK’s Non-Resident Landlord Scheme (NRLS). It threatens the tenants with a penalty if they failed to deduct tax in circumstances where they are supposed to.

The Chartered Institute of Taxation is “urging any confused or concerned tenant not to ignore the letter and to seek advice if they need it”.

The penalties mentioned in the letter to tenants are only relevant to situations where the tenant has chosen not to deduct tax at the right time, or neglected to do so.

Non-Resident Landlord Scheme
If: the landlord is not resident in the UK; and there is no letting agent; and the rent is over £100 per week – the tenant must withhold basic rate tax and pay it to HMRC every 3 months unless the property owner gets permission from HMRC to receive income gross.

HMRC action where no response is received
HMRC have said that: “Where we have had no response from either the tenant or the landlord, our process is to register the property for the ATED charge and to issue the offshore company with a tax determination. The company is liable for this tax demand, not the tenant”.

What does this mean for me?
If you are a tenant, and there is no letting agent, then you need to be sure about the identity of your landlord. If your landlord is based outside the United Kingdom you have to do deduct tax out of your rent before you pay it over to the landlord. You can be fined if you fail to do so.

If you are a non-resident landlord then you either need to get written permission from HMRC to receive the rent gross (although you will then have to complete an annual tax return) or tax will be deducted at source from the rent (i.e. before you receive it). HMRC will also be following up on ownership issues (e.g. whether a trust is concerned) to see if there are any other tax implications for the landlord.

How can Lynam Tax Experts Help Me?
The Lynam Tax Specialists have a huge amount of experience in dealing with: property tax matters; residence issues; the Non-Resident Landlord Scheme; and the ATED charge. If you are a tenant and have received one of these letters and are connected to the landlord then you need specialist advice immediately. If you are a landlord and one of your tenants received this letter, you should make sure that your UK tax position is robust.

These can be complex issues. For a free, confidential, no obligation discussion call:

Paul Lynam: 0845 643 9997

Andrew Nutbrown: 0771 877 8710