Overseas landlords and tenants

HMRC has sent out two different letters to non-resident corporate landlords, and to the tenants of their properties. If you receive such an HMRC letter you may be confused about your tax obligations.

The landlord’s letter is sent to offshore corporate entities or trusts which own UK residential property, and refers to the obligation to pay the Annual Tax on Enveloped Dwellings (ATED). Unfortunately, HMRC has not checked its ATED database before sending the letters, so entities already registered for, and paying, the ATED may be confused and alarmed by this letter.

A second message in the landlord’s letter concerns the non-resident landlord scheme (NRL), which is due to change from April 2020. Corporate landlords will no longer pay income tax on their UK residential property income, but need to register with HMRC to pay corporation tax. The legislation was passed as Schedule 5 of FA 2019, but HMRC has yet to publish any detailed guidance for those companies.

The letter to the occupier of property owned by a non-resident corporate landlord is likely to generate more alarm, as the tenant may have no connection with the landlord and no idea that it is a non-resident entity.

This letter tells the recipient that tax may have to be deducted from the rent paid, and requests numerous details about the rent and when the tenant moved to the property. It also requests substantial information about the ownership structure if the property is held by a trust.

The tenant may well miss the short negative statement in the letter which says: “You will need to take tax from your rent if you: don’t pay your rent through a letting agent”. So may be concerned that they need to quickly register with HMRC.

These letters should not be ignored as HMRC will follow them up. A sensible response is to reply to HMRC pointing out that either the appropriate registrations for ATED or NRL are in place, a letting agent is acting, or that no rent is being paid.

Written by the Tax Advice Network