James McAuliffe and his wife were looking at properties to rent in Buckinghamshire. They found exactly what they wanted - a three-bedroom cottage at a rental of pounds 650 a month.
The landlord lived abroad and there was no agent to manage the property or collect the rent. Mr McAuliffe was to pay the rent direct into the landlord's bank account.
'I did not think anything of it until just by chance my wife was filling in her tax return,' Mr McAuliffe said. 'She noticed that you had to declare rental payments that you paid direct to a non-UK resident. She rang the Inland Revenue and was told that, as payers of the rent, we were responsible for any tax liability the landlord might have on the rent. The Revenue advised us to deduct basic-rate tax from the rent paid to him.'
Mr McAuliffe was not happy with the situation. He did not want to be responsible for the landlord's tax, so he and his wife found another property.
Robert Maas, a partner with the chartered accountants Blackstone Franks, said there was a statutory duty on the tenant to deduct tax. 'The Revenue can go to either the landlord or the tenant if the tax is not paid.'
He believes most tenants know nothing about it.
If a tenant has any doubt about the landlord, they should ask for a letter confirming that he is not resident abroad.
David Rothenberg of Blick Rothenberg, the chartered accountants, advised: 'If there is any suggestion whatsoever that the landlord is resident abroad, then withhold the tax until the landlord persuades you otherwise.' You should deduct tax even if the money is paid into a UK bank account, he said.
Having to play Interpol with your landlord's whereabouts seems ludicrously unfair on the tenant. However, the Revenue does extend one small gesture of compassion to an unsuspecting victim. 'It is Revenue practice that if a landlord moves abroad and the tenant is unaware of the move, the tenant will not be liable for the tax which should have been deducted from the rent,' Mr Rothenberg explained.
Michael Norrie, of the chartered accountants Norrie Stokes and Perrett, describes it as a 'silly piece of law' and advises tenants to rent through an agent. Then any tax hassle is firmly in the agent's lap, and not the tenant's. The tenant pays the rent to the agent in the usual way, and the agent is responsible for the tax.
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