Advisers warned about HMRC property letters

Advisers warned about HMRC property letters

Advisers and their clients should be prepared to act on letters from the taxman about their residential property holdings, a tax expert has warned.

HMRC has been sending letters to companies registered overseas that own UK property, and also to tenants of a residential property that is owned by an overseas company.

The letter to the tenants tells them they may need to withhold tax from their rent and pay it directly to HMRC and it includes a form which requests numerous details, including the date the taxpayer first moved to the property and the amount of rent being paid.

Tenants can withhold rent from a landlord even if there is a tenancy agreement because under the law HMRC takes precedence over the tenancy agreement. 

The letter to the companies meanwhile requests information on the ownership structure of the property if it is held by a trust and states that another letter referring to the Annual Tax on Enveloped Dwellings (ATED) is being sent directly to the companies.

ATED is a tax levied on the owners of residential property with a value of more than £500,000 that is owned by a company or partnership. 

This letter also highlights the non-resident landlord (NRL) scheme, requesting non-resident company tax returns to be sent to HMRC if the landlord lives abroad and lets or rents out the property. 

The taxman has been using data it already holds and that obtained as part of an agreement with authorities in more than 100 countries, to track down those it believes may owe tax on their assets. 

Andrew Hinsley, tax partner at RSM said the letters are a "two-pronged attack, separately requesting significant information from both the owner and the occupier of any properties held by overseas companies.” 

He said the taxman will send many letters to individuals and companies that are tax compliant, in the hope of also sending them to those who owe tax, in a 'see what sticks' approach.

Mr Hinsley said this was now “standard procedure” for HMRC as he urged advisers and their clients to not ignore the letters.  

A HMRC representative said: "Corporate owners located overseas, who own a UK property, need to be aware of their UK tax obligations as they may need to pay tax on rental income or register the property with HMRC for a tax charge.

"HMRC is contacting both the overseas owner and any occupant of the property to provide information and help put right any innocent errors made."