What are HMRC doing?
HM Revenue & Customs have launched an investigation into overseas landlords who may be avoiding paying the correct amount of tax. Owners of UK properties who have their ‘usual place of abode’ outside of the UK for more than 6 months of the year, known as non-resident landlords, are required to pay tax on the income they receive from renting out property in the UK.
Letters are being sent to tenants of properties who are believed to be owned by non-resident landlords. HMRC are using this route to gather information on non-resident landlords and their properties.
Why are HMRC targeting tenants?
HMRC are targeting tenants of properties belonging to non-resident landlords. Under the non-resident landlord scheme, tax owed by overseas landlords can be paid by either a letting agent or the tenant. Through the tenant, this is done by withholding tax from the rent before paying it to the landlord. The tax amount deducted from the rent is then paid to HMRC instead.
However, what comes as a surprise in a series of information-collecting procedures about non-resident landlords, HMRC are now also suggesting that as well as withholding rent, tenants should provide full details of their time living in the property. The letters require tenants to state how long they have lived at the property in question, what their relation is to the owner of the property and how much rent they pay. The letter also warns that any errors or incorrect information given in the form may result in a penalty.
A sample letter from the Chartered Institute of Taxation can be viewed here.
Are letting agents being targeted too?
Letting agents also have the responsibility of operating under the Non-Resident Landlord (NRL) Scheme, no matter how much rent you collect. If HMRC finds that the information provided by tenants shows that overseas landlords do not belong to the NRL Scheme, a follow up will go out to both tenants and letting agents who manage the property, requiring that they deduct the income tax payable to HMRC from the rent.
What to do if you or your tenants are targeted?
There is no legal obligation to respond to the letter, however a response will give enable HMRC to determine what further action is required, if any.
