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Am I responsible for paying my landlord’s tax bill? 


Since late 2018, I have rented a room in a flat-share from a landlord who was known to me and asked for rent to be paid in cash, which I agreed to.

I recently received a letter from HM Revenue & Customs, asking me about the tax status of my current landlord, which suggested I may have to withhold tax from my rental payments to ensure the correct amount is paid. Am I potentially liable if my current or previous landlord has not complied with HMRC and how should I respond to this letter?

Dawn Register, partner in tax dispute resolution at accountancy and business advisory firm BDO, says it sounds as if you have received a “nudge letter” from HM Revenue & Customs (HMRC). This is a batch letter sent to certain taxpayers as part of a HMRC campaign.

In this case, HMRC has identified and sent letters to tenants of properties owned by non-UK resident landlords. The letter reminds affected tenants of the rules under the Non-Resident Landlord (NRL) scheme. This is a new HMRC campaign. However, the NRL scheme dates back to April 1 1996.

You understood the letter correctly. If the landlord is non-UK resident and subject to the NRL scheme, you may need to deduct basic rate tax at 20 per cent from the rent. A non-resident landlord could be an individual, a company or trustees. Subject to exceptions, a tenant needs to deduct tax from the rent if the rent is not paid through a letting agent and more than £100 a week is paid to the overseas landlord or their UK representative, for example a friend or family member.

Dawn Register, partner in tax dispute resolution at BDO © Handout

If the rent is paid to the letting agent — which in your case it is not — it is the letting agent’s responsibility to withhold the tax due. What constitutes a letting agent is broad and depends on the particular arrangement. In our experience, the tenant’s obligation to deduct basic rate tax is not widely known. The NRL scheme allows non-resident landlords to apply to HMRC to have their UK rent paid to them gross, but it is unlikely tenants will know whether this applies to them.

Tenants who are required to operate the NRL scheme must notify the Personal Tax International team at HMRC and account quarterly to HMRC Accounts Office, Shipley, for any tax due under the scheme. Where they are required to account for tax they should provide their non-resident landlords with a certificate of tax liability each year, plus complete an annual information return.

It may sound surprising but, where applicable, the withholding of tax from rent due to non-UK resident landlords is the tenant’s responsibility. HMRC’s manual, however, suggests that affected tenants “have the right to recover from the landlord any tax they have to pay under the scheme where they did not deduct it from their rent or other money owing”.

It seems plausible that many tenants will not know the answers to certain details they are being asked to provide in respect of their landlord. The Chartered Institute of Taxation has advised recipients not to ignore such letters and I agree. Individuals receiving the letter should engage with HMRC and complete the questionnaire as best they can. If confused or unsure, specialist advice should be sought.

James Parratt, solicitor at Thomson Snell & Passmore, says this letter is part of HMRC’s information gathering process to help them establish whether or not your landlord is a “non-resident landlord” — in other words, their usual place of abode is outside the UK. This is distinct from being a resident in the UK for tax purposes. A non-resident landlord can be an individual, company or trustees.

The non-resident landlord scheme requires income tax at the basic rate to be deducted from rental payments to the non-resident landlords of UK property. This tax is to be accounted to HMRC.

If your landlord is a non-resident, you are obliged to deduct tax from the rental payments you make to your landlord, and account for this to HMRC. If you pay more than £100 per week and your landlord lives abroad, you must register with HRMC and deduct tax from your rent, assuming you have not already been notified by HMRC of the scheme. Registration with HMRC may also be necessary if you pay rent to a UK representative of your landlord.

James Parratt, solicitor at Thomson Snell & Passmore © Handout

Do not worry — these deductions do not mean you are paying more; you are simply withholding the tax calculation from your landlord and accounting for this to HMRC instead.

While there is no obligation to respond to the letter and questionnaire, doing so will enable HMRC to help you if further action is required, or to tell you if no further action is required. If you do not respond, HMRC is likely to register the property for a tax charge and issue a tax determination to the landlord.

You are not obliged to inform your landlord that you have received the letter from HMRC. But if the tax authority determines that your landlord is a non-resident, you should inform your landlord that you are required to deduct tax from the rental payments.

The reduction in rent payable to your landlord will not affect your rights in respect of your tenancy agreement, nor give your landlord a new right to seek possession of their property. Your landlord will have no incentive to find another tenant as a new tenant will also be obliged to deduct tax from their rent payments if HMRC determines your landlord to be a non-resident landlord.

I suggest you engage with HMRC, completing the questions as far as possible, and do not ignore it. When responding, you should answer the questions to the best of your knowledge. HMRC suggests tenants should reply “not known” if they do not know the information for the specific questions.

You should not be overly concerned about any references to penalties in the letter. HMRC will not look to charge a penalty if mistakes have been made in the completion of the form attached to the letter. Penalties are only relevant where the tenant has chosen not to deduct tax at the right time or neglected to do so.

HMRC has a dedicated helpline to answer any queries you may have and this may also be of assistance when preparing your response to them. The number to call is 03000 516 644.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com

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