Overseas Landlords: Is HMRC’s Latest Push Overly Aggressive?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Overseas, Non Resident Landlords & Tax on Foreign Property – Is HMRC’s Latest International Property Push Overly Aggressive?

Prorogue

With parliament prorogued and Boris Johnson’s tenure as Prime Minister off to the very rockiest of starts, a famous phrase attributed to one of the previous occupants of Number 10 Downing Street, Harold Wilson, comes to mind.

If it’s true that a week really is a long time in politics, I wonder what might be said for those individuals who spend their working days in a building less than 200 yards away; namely, the headquarters of HMRC.

Six weeks ago, some readers might recall my having written a blog on the decision of current Revenue Chief Executive, Sir Jon Thompson, to leave for pastures new… News of his resignation coincided with the publication of HMRC’s latest annual report which, I remarked, potentially indicated a softening in tone.

” Taxman Aggression – Maximum Impact”

In place of the hard-faced determination to recoup every penny in tax which it reckoned that it was owed – the “maximum impact” referred to in its previous yearly summary – was a rather more gentle appreciation that “the tax affairs of individuals and businesses continue to become more complex”.

Well, less than two months on, HMRC has reverted to what has been described as “taxman aggression”.

It’s been reported the Revenue has been trying to turn the heat up on overseas landlords by writing to their tenants and asking them to withhold rent (Read More…).

The missive has been interpreted as something of a fishing expedition – trawling for information to enable them to mount a robust case in pursuit of outstanding cash.

Non-resident Landlord (“NRL”) scheme

Nevertheless, I reckon that it’s rather more calculated than that. It seems to me to be an attempt to enforce something called the Non-Resident Landlord Scheme.

Where a landlord resides overseas (whether an individual, company or trust) then there is a default requirement for a tenant or agent to deduct and withhold tax from the payments of rent.

However, the landlord can apply to HMRC for permission to be paid their rent gross, on the understanding that they will fill in a self-assessment form at the end of each tax year and pay the requisite sums due. Generally, this is a foregone conclusion as long as the landlord has previously kept their nose clean as far as HMRC is concerned.

Now, I must point out that the scheme isn’t particularly new. In fact, it’s been around for more than 20 years.

So, under the Non-Resident Landlord Scheme, tenants paying more than £100 a week need to register with HMRC. If they haven’t explicitly been told that their landlord has permission to receive rent inclusive of tax, they must deduct it and pay the money straight to the taxman. As I said above, the scheme establishes similar arrangements for letting agents too.

What’s different this time around is that HMRC is suggesting that tenants, as well as withholding rent, provide full details of their time living in the property in question.

Furthermore, failing to do so or making errors while doing so could result, say the letters, in penalties for the tenants.

Non Resident Landlords – Do it yourself

It seems to me to be a rather forceful effort to flush out information about non-resident landlords – almost having tenants do HMRC’s work for it.

In that sense, there are apparent parallels with the off-payroll rules set to be introduced in the private sector next April and demands not only that employers provide the Revenue with determinations as to the IR35 status of contractors but deduct and hand over tax from their engagement too.

The latest exercise, involving tenants who may very well not know what their landlord has declared, is says HMRC, part of its “targeted compliance activity”.

Even so, issuing what the Daily Telegraph claims to be “thousands of letters” implies that the Revenue has drawn up a pretty large target.

No matter how subtle HMRC believes its correspondence to be, the effect for landlords and tenants alike can be intimidating. It’s one reason why, earlier this year, it emerged that there had been a 61 per cent rise in he number of landlords living overseas who have come forward to admit tax avoidance on British rental properties.

That surge followed another HMRC push via the postal service – a veritable blizzard of letters sent direct to expats with presumed tax liabilities in the UK.

Despite living on the Costas, they are clearly still susceptible to the wintry chill of the Revenue’s breath on the back of their necks.

Conclusion – Non Resident & Overseas Landlords

Some might argue that using such methods against individuals who aren’t paying taxes due is perfectly fair but try telling that to tenants innocently caught in the crossfire between a tenacious Treasury and landlords enjoying their place in the sun.

If you have any queries on this article, or you or any of your clients are overseas landlords, then please do get in touch.

You can also read more about Property Tax here and below…

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