Are you a tenant? Have you recently received a letter from HMRC?
HMRC have started to send out letters to some tenants where they think the property is owned by an overseas company or trust as the landlord. This article explains more about the letters and what action you need to take.
Why are HMRC sending these letters?
HMRC have begun to send out compliance letters to tenants of residential property that they believe is owned by an overseas company or trust (called a non-resident corporate landlord). The purpose of the letter is to enable HMRC to gather information to make sure that the landlord is paying the correct amount of tax. However, as the tenant, you may be able to assist in this process. If your landlord is not resident in the UK, you may have obligations under the non-resident landlord scheme as a tenant; we set these out below as well as explaining what you should do if you receive one of these letters.
Note that although this HMRC campaign is directed at tenants of property owned by non-resident corporate landlords, the obligations under the non-resident landlord scheme apply to tenants of UK property that is owned by all types of non-resident landlord, whether individuals, companies or trusts.
Who are HMRC sending the letter to?
HMRC are sending this letter to tenants of residential properties in the UK – if they have information that suggests the landlord / owner of the property is a company or a trust (corporate entity) and is not resident in the UK. This is because the landlord has to pay UK tax on the rental income they receive from the property. In some cases though, the tenant has an obligation to take tax off the rent before paying it to the landlord (this is called withholding tax). The tenant then pays the tax they have taken off the rental income to HMRC. HMRC are trying to ensure that all non-resident landlords pay the UK tax that they are meant to pay. The letter is designed to gather information to ensure the landlord pays the correct tax and that the tenant withholds this tax in cases where they are required to.
I have received a letter; what should I do?
You can view a sample letter on the Chartered Institute of Taxation (CIOT) website. There is no legal obligation to respond to the letter and questionnaire. However, responding will enable HMRC to help you to get things right going forward. It is important that you answer the questions correctly to the best of your knowledge. So, for example, you should be able to provide accurate answers in relation to the questions that request your personal details. You may not know the answer to all of the questions about the landlord / owner of the property, however. If you do not know the answer, you should reply “not known”.
If you are unable to complete the questionnaire fully, an alternative would be to write a letter to HMRC setting out the information that you do know.
If you need assistance completing the questionnaire, one option is to call the helpline number provided on the letter: 03000 554 444.
What will HMRC do if I do not reply to the letter?
As noted above, there is no legal obligation to respond to the letter. If you do not respond, HMRC are likely to register the property for a tax charge and issue a tax determination to the landlord. This is not a tax liability for you, the tenant.
The letter mentions penalties; what does this mean for me?
The penalties relate to obligations under the non-resident landlord scheme, not to whether or not you reply to the letter.
HMRC will only charge a penalty if you are required to deduct tax and have chosen not to deduct tax at the right time, or have neglected to do so (see below about this obligation). This means that if you have failed to deduct tax through a genuine mistake, HMRC will not charge a penalty. Although ignorance of the rules is not generally an acceptable excuse, if you genuinely were not aware of the residence status of your landlord or even the true identity of your landlord, then HMRC should generally accept that the error is genuine.
What is the non-resident landlord scheme?
This applies to landlords that are not UK resident – they have to pay UK tax on income they get from letting out property in the UK. The way in which this tax is collected is called the non-resident landlord (NRL) scheme. Under the NRL scheme, either the letting agent or (if there is no agent) the tenant pays the tax to HMRC.
I am a tenant; what are my obligations?
If you rent a property in the UK, pay more than £100 a week, and your landlord lives abroad, or is an overseas company or trust, you must register with HMRC and deduct tax from your rent. You also need to register with HMRC if you pay the rent to a UK representative of your landlord, such as a friend or family member. You have to pay the tax over to HMRC.
You do not have to register with HMRC or deduct the tax if you pay the rent to a letting agent in the UK.
You do not have to register with HMRC or deduct the tax if HMRC have told you in writing that the landlord can receive the rent with no tax deducted.
If you have more than one landlord, the position may be slightly more complex and you should read the detailed guidance referred to at the end of this article.
How do I fulfil my obligations?
If you fall within the NRL scheme, you must register with HMRC by writing to them. You should give your own name and address, that of your landlord, and state that you wish to register for the non-resident landlord scheme.
You need to work out and pay the tax to HMRC within 30 days of the end of each tax quarter. The four tax quarters end on 30 June, 30 September, 31 December and 31 March. There is an example of how to do this on GOV.UK.
You must send a report each year by 5 July to HMRC and the landlord using form NRLY.
You must also provide the landlord with certificate NRL6 each year by 5 July.
You must keep records for four years of:
- Rent you have paid, with dates and amounts
- Correspondence with the landlord (if you have contacted them about their residence status)
- Expenses you have paid, including dates, amounts, descriptions, copies of invoices / receipts
Where can I get further help?
If you need help to answer the letter or deal with the ongoing obligations required of tenants of non-resident landlords, then you can contact HMRC. If you require extra support, you should explain this to the HMRC member of staff, and they should direct you to HMRC’s Extra Support Service.
There is detailed guidance about the non-resident landlord scheme on GOV.UK.
Alternatively, you one of the tax charities may be able to assist: