Making Payments to Offshore Landlords on UK Properties
Guidance Note re: Important Tax Law
Avoid being held responsible for the Landlord’s UK tax bill!
Nobody wants to get into trouble with the UK taxman (HMRC). But you can easily fall into this compliance trap if you’re not very careful if you’re paying rents on their UK homes.
And indeed the renters themselves can get into trouble if they are making payments to an overseas landlord.
Because HMRC can come after you for the landlord’s unpaid tax where the tenant is paying the rent to an offshore landlord. But you can protect your company, or the renters in the UK, by taking the necessary steps.
In every case it’s necessary to establish whether the landlord is an offshore, i.e. “non-resident” for tax purposes. This should form part of your due diligence process at the start of every tenancy - and whenever the landlord makes a request to change the destination account for the rent payments.
A situation where the tenant’s position was safe at the start of the lease, because the rents are being paid to a UK agent, can be rendered non-compliant when the landlord requests that the rents be paid to a different account. If you don’t have a due diligence process in place, it is all too easy to become non-compliant.
Take a look at all your UK files and check if the landlord is non-resident for tax purposes.
Her Majesty’s Revenue & Customs (HMRC) states (emphasis added):
“If your landlord lives abroad ……, 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.”
In the UK, HMRC has a scheme called the “Non-Resident Landlord Scheme” (NRLS).
If your landlord is an overseas landlord, they should be aware of this scheme and may already be a member.
If so, your landlord needs to request that a letter from HMRC be sent to you as the tenant confirming the date they joined the scheme and that HMRC have approved them to receive their rental income with no tax deducted.
Your landlord, or in some cases, his financial adviser/accountant, needs to contact HMRC and complete an NRLi1 form to join the NRLS.
If approved by HMRC they will write to you as the tenant confirming that your landlord is now member of the NRLS and that the full amount of the rent can be paid without any tax being deducted. Until such a letter is received, you MUST deduct and retain 20% of the monthly rent.
If you’re landlord does not join the NRLS, you as tenant need to deduct tax. You will also then need to join the NRLS and to do this you should send a formal, written request to HMRC.
You will then need to account to HMRC for any tax deducted at the end of each tax quarter.
Once you are registered with HMRC they will send you quarterly returns for completion. You will also need to complete an annual return confirming the payments that have been made throughout the year.
You do not need to complete an annual return if your landlord is registered with NRLS and you have received a letter confirming they can receive their rental income with no tax deducted.
If you have a question, be sure to use our Contact Form and we’ll connect you with one of our Relocation Experts.
To read related articles, please click the titles below: