non resident's landlord scheme - tax on rent?

wimbleQ

Hello,

I hope someone might be able to assist with a problem that's arisen. Some friends of ours are renting accommodation. The Landlord is abroad and in the tenancy agreement he only provides his foreign address (in Asia).

My friends have only just realised that they appear to have an obligation to contact Inland Revenue regarding whether they should be withholding tax from the rent and in the information they have read it says if they don't then they might become liable to pay the tax! They are in dire straits and couldn't possibly afford to pay this.

They currently pay their rent directly to the landlord by standing order.

They genuinely weren't aware of this legislation/obligation. They are at the end of their tenancy now but experiencing some other problems with the tenancy. Should they go now to the Inland Revenue to explain or is there a strong chance they will end up being hit with a big tax bill - should they say nothing?

If anyone has any information on this it would greatly put minds at rest.

Ta muchly.

mlz1413

What legal obligation have your friends found out about? Can you be a bit more specific?

I can't imagine how a tenant paying a set rent as laid out in a tenancy agreement can possible be liable for the LL's tax in anyway.

Everyone's tax is different dependant on their circumstances, as in the LL maybe working in Asia but if he is there working via a British company and is still be paid in Britain that is different to if he lives over there and then runs a business over here, but it is still nothing to do with the tenants as tax is personal and can't be transfered to a 3rd party because logistics make that an easier option.

I'd be tempted to think the LL wants the tenants to pay a tax bill out of the rent (not on top of) so he doesn't have to bother with foreign exchange and bank transfers.

Still please advise of the legislation / obligation as this sounds very interesting.

N79

I can not point to the legislation but HMRC require LA or if no LA tenants to pay the tax portion of rent for overseas LL to themselves rather than to the LL unless the LL has applied and recieved permission to receive rental income gross. In reality this is aimed at LA who now have to act as unpaid tax collectors for HMRC (like companies with PAYE). In theory, Ts should also do this.

However, this one is easy. If the property is in England and Wales and the Ts do not have an address in England and Wales on which to serve notice then no rent is due. (S3/S48, LL & T Act 1985)

So I suggest the friends stop paying rent until the LL complies with the law (place the rent in a seperate account - don't spend it - incase it becomes lawfully due).

mlz1413

Thanks N79, that makes more sense than the Tenant being liable for the tax of LL.

If its money from the rent just re-directed to HMRC then that means the T's are no worse off.

N79

mlz1413 wrote: »

Thanks N79, that makes more sense than the Tenant being liable for the tax of LL.

If its money from the rent just re-directed to HMRC then that means the T's are no worse off.

Correct - T does not pay more rent. They simply pay the income tax portion to HMRC instead of the LL.

The scheme certainly exists but I am a registered LL so I get to have my rents paid to me gross. It was introduced as part of HMRC's crackdown on overseas LLs not declaring rental income on tax returns as even though I am non resident for tax rental income which arises from property rented in the UK is still taxed in the UK.

Yet another pointless waste of paper as very few, if any overseas LL would pay tax on their rental income anyway!