We put several questions to HMRC about the letter, and received the following responses, which we have collated into a Q&A format. Before publishing these Q&As, we discussed them with HMRC to check that they accurately reflect HMRC‚ s position. HMRC have provided a sample letter.
Questions and answers
It is unclear why HMRC would send this letter and the list of questions to a tenant, as it would seem unlikely the tenant would know the answers to many of the questions (particularly the ones about trusts).
The letter and questionnaire have been designed to gather information to ensure the correct tax is paid. This includes situations where the tenant may be connected to the offshore entity. In those cases, we would expect the tenant to know the answers to many of the questions asked. The tenant should reply ‚ not known‚ if they do not know the information.
It is unclear why the tenant is being asked to provide their personal details (NINO and UTR, email address and telephone number for example). Perhaps the form should caveat that not all this personal information is a requirement / it is voluntary.
The information requested from tenants is required to ensure HMRC can accurately confirm the identity of the tenants and ensure we have the most up-to-date contact details on file. As the tenant may have personal responsibility for deducting tax on the rents paid, it is important that HMRC has the most up-to-date and accurate information.
It would appear that there is no legal obligation on the tenant to respond to the letter and questionnaire. Would HMRC confirm this to be the case, or not?
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.
If the tenant is unable or unwilling to complete the questionnaire, would a letter providing the information they know about the tenancy suffice?
Absolutely. We are asking the questions to help work out whether the correct tax has been paid. Any and all information (regardless of its form) will assist us with this.
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. Perhaps the letter could have included wording such as ‚ we recognise that you may not be able to answer all the questions we have asked. Please supply the information requested to the best of your ability and knowledge.
Throughout the letter, we offer support to occupants to help them understand this complicated area of taxation and how it might impact upon them, depending on the circumstances of their rental or occupancy arrangement. Contact details are provided for any occupants who require further information or support in responding to the letter which they have received. The helpline number to call is 03000 554444.
We take on board the feedback about the wording in the letter and will review this for future exercises of this nature.
The wording at the end about errors and penalties could alarm the recipient especially if they are not able to answer all the questions.
It is not our intention to cause distress, we are simply asking occupants of the property to provide information to enable HMRC to ensure the correct amount of tax is paid.
We would 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.
The tenant should answer the questions to the best of their knowledge. If they have any questions or need help, they can phone us on the dedicated helpline.
CIOT follow-up comment: In the perhaps less common situation where there is no letting agent, a third party tenant wholly unconnected to the non-resident landlord may have no knowledge, or means of establishing that deduction of tax is required. In such cases the tenant cannot be said to have chosen not to deduct tax or necessarily have been neglectful in doing so.
It is recognised that if there is no agent, and subject to the de minimis (of an annual rent of £5200 or less), the tenant must withhold basic rate tax and account to HMRC quarterly unless the property owner applies to HMRC for permission to receive income gross. However, we suspect that few tenants, especially those who have no connection with the landlord beyond that of the landlord/tenant relationship, are likely to become aware of these obligations. It is difficult to see, in practical terms, how they might become aware that these obligations exist. The GOV.UK guidance on ‚ Landlord and tenant rights and responsibilities in the private rented sector‚ makes no reference to the tax obligations of tenants (except for council tax).
We recognise that there is tax guidance on GOV.UK for Paying tax on rent to landlords abroad . However, there is nothing to point a tenant to that guidance. It was last published in December 2014. There does not appear to have been any efforts to alert tenants to their obligations in advance of the ‚ nudge‚ letters and the potential imposition of penalties for failure to meet those obligations that may arise as a consequence of the letters.
HMRC Further Response
We would reiterate that 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. Therefore, whilst the technical position regarding penalties is correct, we have decided to remove the reference to penalties in any future letters to avoid causing any potential distress to the majority of tenants who have made genuine mistakes. Tenants who didn‚ t make a genuine mistake may still be liable to a penalty.
Thank you for your comments on the guidance which we will take forward in terms of how we might improve this to enable individuals to better understand their obligations.
The tenant may decide to seek professional advice before answering the letter (particularly given the threat of penalties). It might help to mention that if they have an agent, they might want to show it to their agent before responding.
Customers are always advised to consult tax specialists on any areas of tax with which they are not familiar to ensure they are complying with their tax obligations.
CIOT follow-up comment: We note the wider context. However, we think it would be preferable to say that in the letter itself.
HMRC Further Response:
We will amend future iterations of the letter to ask the tenant to show the letter to their tax adviser if they have one.
In general, what sort of response have HMRC had to the letter?
HMRC have received a positive response to the letters from both tenants and landlords and our telephone team has been active in supporting customers with any queries.
What action will HMRC be taking where no response is received to the letter?
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, however if tenants have any concerns at all they should contact the helpline provided.
What are HMRC intending to do with the information provided by tenants? There is some misgiving amongst our members that the information requested might be used for more than the stated purpose of checking whether tax should be deducted from rents paid.
It is HMRC‚ s role to ensure that everyone pays the tax they owe to ensure the continued funding of the UK‚ s vital public services. In some cases, the tenants we have contacted may have a beneficial interest in the property which they are renting, requiring follow up activity to understand the tenant‚ s situation in relation to the offshore landlord / company. If the tenant has any concerns about their personal tax affairs, they can contact HMRC on the number provided in the letter.
Are any further mailings planned, and if so, when?
HMRC regularly sends letters to customers to educate, remind or prompt them to review their tax affairs, particularly where we have information that suggests there are specific risks to the payment of tax owed.