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Tenants to pay tax

A number of newspapers have reported that tenants with overseas landlords have received letters from HMRC advising them that they may have to withhold rent to help settle their landlords’ tax liability.

We have not seen these letters, but we understand that thousands have been sent to tenants and overseas landlords. The letters are not targeted but sent out in order to obtain information on landlords that may be avoiding their tax obligations. This means overseas landlords who may have settled their tax bills are also caught up in this fishing expedition which is no doubt stressful for them, their agents but also their tenants.

The letters are believed to advise tenants that they may need to give HMRC some of the rent to settle their landlords’ tax bill. The letter also requests information about the tenant and their tenancy and warns that if they make an error when providing this information they could face a fine.

Surprisingly, tenants who have overseas landlords and pay rent of more than £100 a week have been obliged to register with HMRC and deduct tax from the rent since December 2014. The obligation to deduct rent does not apply if HMRC advises a tenant in writing that they do not need to make the deduction. However, the obligation to register and complete an annual report is ongoing for the duration of the tenancy where the landlord is overseas. The obligation on tenants has therefore existed for nearly 5 years but it now appears that HMRC is actively using this power to obtain information on overseas landlords.

Those that live abroad but own property in the UK and receive more than £100 a week in rent will still have tax liabilities. Agents usually make the necessary tax deductions for an overseas landlord if they are instructed to fully manage a property. However, HMRC has had to crack down on overseas landlords failing to comply with their obligations and this is no doubt a further attempt to ensure tax is paid.

There is no doubt that anyone receiving one of these letters will be worried about the potential impact on them if they do or do not respond to such a letter. Tenants who decide to hold back on rent to settle a potential tax bill for their landlord will be breaching their tenancy agreement. The advice for anyone in receipt of such a letter is therefore to contact their landlord or tenant and discuss the matter and where necessary to seek advice on any potential tax liability.

Published 1 October 2019

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