Testing Times for Tenants - HMRC ask Tenants about their Landlord's UK Tax Status

29 November 2019

No longer content with targeting landlords directly for any unpaid tax, HMRC have now decided to change tactics, and instead issue letters to individual tenants, quizzing them on the tax status of their landlords. The aim is to establish whether rental income has been correctly declared, and tax has been paid, in cases where they think the property is owned by an overseas landlord, company or trust.

The letters enclose a form, asking the tenant for information connected to the property, for example who legally owns the property, the main aim being to gather information about the landlord themselves, and includes questions about the involvement of any overseas entities and trusts, answers to which the tenant is unlikely to know, and will almost certainly cause some confusion.

HMRC may also send corresponding letters to any overseas landlords and companies that own these UK properties.

Where the landlord is not tax resident in the UK, tenants may have a personal responsibility to withhold basic rate tax from their own rental payments, and then arrange to pay this tax to HMRC via the Non resident Landlord scheme (NRL).

These letters initially included the threat of penalties for any mistakes made in their reply to HMRC’s letter, or instead failure to comply. Following concerns raised by professional bodies, who believe many tenants will simply be unable to answer many of the questions, and therefore worried about how to respond, HMRC have confirmed that any further letters will not include such penalty threats.

What action should be taken?

Landlords should seek tax advice where they are unsure of their UK tax obligations. They may wish to communicate with their agents / tenants who could receive these HMRC letters and landlords should submit a response to HMRC themselves. Before responding, consideration should be given to any wider tax implications associated with this, which may require a formal disclosure to HMRC.

Tenants in receipt of these letters are advised that they may wish to seek tax advice in relation to their obligation to deduct tax under the NRL scheme.

If you have received one of these letters or would like more information on the Non res Landlord Scheme, please contact Lynn Gracie or your usual AAB contact.

By Lynn Gracie, Private Client Senior Manager at Anderson Anderson & Brown LLP.

To find out more about Lynn and the Private Client Tax Team, click here.

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