Tenants are being quizzed on the tax status of their landlords by HMRC.1 An HMRC fact finding letter goes on to suggest tenants may have to take 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 (NRL) – or face a fine.2 The CIOT is urging any confused or concerned tenant not to ignore the letter and to seek advice if they need it.
The HMRC letters are accompanied by a form which asks the tenants for information about the property, such as whether it is owned by a trust and, if so, the date it was acquired by a trust, and details about the trustees, settlors and beneficiaries. The letter and questionnaire form are designed to gather information to ensure the correct tax is paid.
Brian Slater, Chair of CIOT’s Property Taxes Sub-committee, said:
“The letters are likely to confuse tenants when there is no letting agency contracted to let the property and they have to deal with such requests from HMRC themselves.
“It is unlikely the individual tenant would know the answers required of many of the questions on the form unless they are closely connected to the landlord, say a relative. We are concerned that a tenant who receives this letter may be worried about how to respond, particularly if they do not have enough information or knowledge to answer the questions. A tenant may not know that the landlord’s usual place of abode is outside the UK and, even if they do, how will they know about their tax obligations? The wording at the end of the letter about errors and penalties could also alarm the recipient especially if they are not able to answer all the questions.
“HMRC suggest tenants should reply ‘not known’ if they do not know the information for specific questions. There is no legal obligation to respond to the letter and questionnaire but the response will enable HMRC to help the tenant if further action is required or to quickly tell them that no further action is required.”
HMRC have now told the CIOT that they will no longer include in the letters the threat of penalties for tenants who fail to comply, and to amend future iterations of the letter to ask the tenant to show the letter to their tax adviser if they have one.
But the underlying threat of a penalty where tenants make a mistake in their reply to the letter which is not considered by HMRC to be a genuine mistake remains unchanged, and this worries the CIOT. HMRC have now clarified that they will not look to charge a penalty if mistakes have been made in the completion of the form attached to the letter to tenants. 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.
Brian Slater said:
“We are concerned that these letters will land on the doormat of tenants who do not have a tax adviser and in some cases will be unable to pay for tax advice. People who receive the letters should engage with HMRC, completing the questions as far as possible, and not ignore it. We suggest renters read the new advice published on our website.3 If tenants still have concerns or remain confused by HMRC’s letter, then they should seek advice from HMRC’s helpline or tax charities where eligible, or contact a tax adviser.”
Notes for editors
1. An example of the letter can be viewed here.
2. The Non-resident Landlord Scheme: A UK non-resident landlord must pay tax on any income they get from renting out property in the UK as would a UK resident landlord. Unless the non-resident landlord opts to file tax returns, the tax is collected using the NRL. The tax can be paid by either a letting agent or the tenant. If the landlord lives abroad, there is no letting agent involved and a tenant pays over £100 a week, they need to register with HMRC and deduct tax at basic rate (currently 20%) from the rent. But a tenant does not need to deduct the tax if HMRC told them in writing that the landlord can receive the rent with no tax deducted.
3. Tenants will find helpful background on the CIOT website here.