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  • Tax

    HMRC propose to collect landlord tax from tenants



    When I saw this story pop up on twitter this morning, I genuinely thought it was an old tweet from an April Fool!

    Expat landlords are facing a crackdown as the tax man grills tenants about their finances.

    HM Revenue & Customs has sent thousands of letters to buy to let renters in the UK demanding they pass on personal and financial information about their landlords.

    The letters also warn that they might have to deduct income tax from the rent they pay – and if they don’t, HMRC will fine them.

    HMRC has identified private rented homes owned by expat landlords or offshore companies and wants to check that the right amount of tax is paid on rent profits.

    Full/source story 

    This issue of tenants paying landlords' tax liabilities has been addressed by Solicitor Giles Peaker on his Nearly Legal blog where he describes this as "utterly stupid".

    Excerpt below:

    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?

    Full/source article 

    Seems someone didn't think this through!  Now where have we heard of that happening before?!?!?

    SEE ALSO  -          Smart Landlord Guide 2019

    UP NEXT -              1 in 4 landlords to exit due to Section 24

    DON'T MISS -         S24 discourages landlord expansion - £50K cap

    NOW WATCH:

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    I'm not sure I agree. For every bit of tax uncollected either those in need don't receive or the rest of us pay more. It's certainly not a perfect solution but HMRC have to try something and what you highlight will be one piece of a jigsaw building up to prosecution and even repossession.
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    The situation regarding overseas landlords hasn't changed.

    The people responsible for complying with the law are landlords, and the only people who might be able to give information about absentee landlords are the tenants. So the basic approach is reasonable. What's not reasonable is threatening the tenants, instead of asking them to provide information.

    And it was never a viable way to collect tax. If a tenant does deduct base rate tax from their rent before sending it to their landlord, in 10 months, they will owe enough to be evicted on a mandatory ground under section 8.


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    There are considerable numbers of landlords that live overseas and avoid there tax obligations by renting directly to their tenants, they can do so with little chance of being caught. The proposal won’t work because HMRC won’t be able to identify the tenants in the first place. 

    There’s a long overdue need for legislation to give gov. agencies the tools they need to identify the undeclared rental sector and deal with it accordingly. Surely would’nt be too hard to incentivise councils to identify let property and check with hmrc that income is declared.
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    " The proposal won’t work because HMRC won’t be able to identify the tenants in the first place.  "

    What about council tax records, credit cards, mobile phone bills, utilities? Would take 5 mins to find out who has lived at a property say in 2019.

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    They're identifying these tenants somehow to write to them.

    The amount of data that HMRC has access to is vast.

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    Mortgage in another name than the resident and not linked to rental income ie. possible income not being declared? HMRC may not know the LL, which is why they're targetting the tenant?

    As with any request for information from the Govt/councils etc. there's always a fine involved for non-compliance. £xK fine for not filling in your register to vote form was the last one I can remember.

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    It would be if there was the ability/will to do it, which currently there is not. Quite why i’ve no idea.
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    I'd be surprised if it took as long as 5 seconds. It won't be being done manually.

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    This may incentivise the people this applies  to to put their house in order so to speak, if they think they are in danger of being rumbled..

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    All comments are made in good faith and are given to the best of my knowledge and experience but I would advise you to consult an expert before making important decisions and I accept no liability for comments made.

    What is an overseas LL? It's not that easy to track who owns/lives where - I have known of a number of people who have a lodger because they are away abroad so much, either for work or to escape the winters. They pay the service bills and council tax themselves and it's their main home.

    I can't see why this should be a problem tax-wise as long as it's below the allowed amount, and it keeps the insurance companies happy as they don't like insuring unoccupied properties.

    The way you would identify where they were actually living would, I guess, be by looking into their bank accounts and seeing where they spent the most money but that's a very dubious way of tackling the problem as many people spend much of their working week travelling overseas.

    After Brexit there may be more checks at borders so things might change. I'd imagine the LL would need to be formally resident in another country and part of the 'system' for this to work.

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    Jess