HMRC propose to fine tenants for not paying their landlord’s tax.

When did you last see...

No, really. I’m not being melodramatic. Not all tenants, and not all landlords, granted, but that is exactly what HMRC say may be done.

This is all about non-resident landlords, living overseas for more than 6 months a year. HMRC are (quite possibly rightly) concerned that they aren’t paying the tax due on their rental income from UK properties.

First, there is this from HMRC, from 2014.

Notably

Tenants

If your landlord lives abroad and you pay over £100 a week, you need to register with HMRC and deduct tax from your rent.

You also need to register with HMRC if you pay a UK representative of your landlord, such as a friend or family member, who isn’t a letting agent.

You don’t need to deduct the tax if HMRC has told you in writing that the landlord can receive the rent with no tax deducted, but you must still register with HMRC and complete an annual report.

And

Letting agents

If you’re a letting agent you must operate the Non-resident Landlord Scheme no matter how much rent you collect, unless HMRC has told you in writing that the landlord can receive the rent with no tax deducted. You may still need to register and complete an annual report.

You’re considered a letting agent under the scheme if you:

    • help the landlord run their UK rental business
    • receive their rent or control where it goes
    • live in the UK for more than 6 months a year

Well, that is both pretty categorical, and, given that it is five years old, went under the radar at the time. Possibly because, at least as far as tenants went, it was unbelievably stupid, for reasons I’ll come back to.

Nonetheless, it appears that HMRC are doubling down. According to this article, they are writing to thousands of tenants of properties that they vaguely suspect to be let by overseas landlords. The letters demand:

  • That the tenants give HMRC what information they have on the landlord, personal and financial.
  • That the tenants pass on information about the landlord agents.
  • Threatening that the tenants may have to deduct tax from their rent payments and pay it to HMRC instead
  • And that if the tenants do not comply, they may be fined by HMRC.

Why is is utterly stupid?

Well, let us start with the fact that that the landlord does not have to give their address to the tenant for rent to be due. Section 47 Landlord and Tenant Act 1987 requires the landlord to give their address (their actual address) on a written demand to the tenant, but the only penalty is that service charges are not due until they do. Meanwhile, s.48 says rent isn’t due unless the landlord has provided an address for service of notices in England and Wales. That would routinely be the agent’s address. It doesn’t have to be the landlord’s own address.

So, landlord doesn’t provide their address, but the rent is still due. No penalty.

Now, under section 1 Landlord and Tenant Act 1985, the landlord must provide their name and address if demanded by the tenant. But the penalty if they don’t is that it is a criminal offence with a fine up to level 4 on the standard scale (£2,500). But realistically, what tenant is going to bring a private prosecution against a landlord of unknown address for this offence? It is not going to happen, and the tenant can certainly not be reasonably required to bring such a prosecution. (All of the criminal penalties for not providing information in the L&TA 1985 are similarly nonsense – most notably the offence under s.25 of not providing details of the invoices behind the service charge under s.23).

So, the blunt position is that the tenant has no way of knowing their landlord’s actual address, let alone whether they are an overseas landlord or not. (Don’t even suggest the land registry. That does not show landlords, just registered owners.)

Then there is this ‘deduct the tax from your rent payments and send it to HMRC thing. The rent payments are contractual. There is no basis for the tenant to turn around and say, “yes, I know it looks like I am in arrears, but actually I’ve just been paying your tax and HMRC made me do it”.

So, basically, HMRC would be asking tenants to get themselves evicted if they comply, or face a fine if they didn’t. This, forgive my language, is utter bullying.

If all HMRC are after is the agent’s details, so they can go after the agent instead (which would make more sense), then that is sort of OK – though still threatening entirely innocent tenants to get that information – but that is not what HMRC say.

Frankly, this is an complete disgrace. How dare they threaten tenants over information that they do not have and cannot realistically obtain?

 

 

 

 

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Assured Shorthold tenancy, Housing law - All and tagged .

5 Comments

  1. Points: 1) I think this is longer established than than five years. When my sister and I let my late mother’s home that we had inherited I was told by HMRC that I was deemed agent for my sister who was overseas and had to deduct her tax before payment. I remember raising eyebrows when HMRC informed me that if I did not comply I would be fined and they (HMRC) would apply to have tenant pay. That was before 2007. 2) In essence this is just a withholding tax, and there are plenty of precedents for that in other areas. If an overseas musician contracts to play at Glastonbury, his client will be obliged to deduct tax, whether or not it is specified in the contract (it usually will be). 3) How does this all fit in with data protection legislation? I agree that HMRC are using bully-boy tactics and this is unacceptable. It seems that there is no basis in law for them to insist the tenant pays, so to imply that there is to a group of people who are unlikely to challenge it is despicable. HMRC could easily remedy this by petitioning parliament to enact the legislation that would enable them to collect tax from tenants. They have not done this because they know that parliament would not agree to it..

  2. The only problem here is the putting of it in the hands of the tenants.

    However I see no reason HMRC, having being informed (by whoever) of an overseas landlord who is failing to pay tax should not be able to attach rents (or part of them). That would be brilliant.

    It would be just like any other third party debt order (I guess a freeholder faced with a non-paying lessee could likewise apply for a third party debt order involving the tenant, and HMRC would be no different). The legal provisions appear to have been there to do that prior to any invention of new legislation or systems.

    • There is no court order here. That is the problem. HMRC can require the tenant, on pain of a fine, to pay the tax part to HMRC without a court order. This means that the tenant would be in breach of the contractual rent requirements. Which means the tenants are risking eviction, as ‘HMRC told me to do it’ is not a defence to a ground 8 rent arrears claim.

  3. The deductions from the rent are authorised by statute and should be certified to the Landlord and count as payment of rent. See Hill & Redman paragraph 1702
    DEDUCTIONS ALLOWED
    A tenant may only make deductions from the rent:
    (a) where authorised by the lease;
    (b) where authorised by statute;
    (c) where he has a right to set off sums due to him from the landlord against the rent.

    accordingly the tenant will not be in breach of tenacy obligations and will be a defence to ground 8

    There has long been an obligation on tenants to deduct tax on payments of rent to non-resident Landlords. As I recall, one didn’t have to deduct tax if the payment was to an agent in the UK. I can remember this I think from the 1970s.

    The mechanism changed and was subsequently found in the s42A of the Income and Corporation Taxes Act 1988 and the Taxation of Income from Land (Non-residents) Regulations 1995 (SI 1995/2902).

    The current provisions are s971 & s972 of the Income Tax Act 2007 which replaced the 1988 act (although the SI was retained with alteration [schedule 2 paragraph 169]).

    There is guidance namely The Non-resident Landlords Scheme Guidance notes for letting agents and tenants to be found at
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/502842/nrl_guide_notes.pdf

    • Thanks. Slight reassurance on the arrears point (though quite possibly wouldn’t stop a landlord trying). The burden on the affected tenant is ludicrous. Quarterly tax calculations and payments with completed forms, interest on late payments or incorrect calculations etc. Any tenant would be well advised to demand to know if the landlord was non-resident before taking on a tenancy!

      And the point remains that the tenant doesn’t necessarily know and can’t necessarily find out.

      I would guess that the reason this is coming to light now is that HMRC have simply never tried to actually use this ridiculous plan before, but now, it seems, have decided to.

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