I am dealing with the administration of an estate where we have been receiving payments of rent from property letting agents who arranged the letting of the deceased’s home shortly before her death. The executors who are the beneficiaries and are uk residents informed us that they will agree the tax position covering the administration period themselves. I am aware that where a landlord is non-resident the letting agent has to deduct tax from rental before payment to the landlord is made. Are we in anyway obliged to retain monies from the rent sufficient to cover the likely tax liability? I think not but would welcome others views.
Do you know that neither of the beneficiaries is or is married to an accountant? If not, you can safely rely on your instructions and leave it to the accountant to submit the tax return and pay the income tax. Solicitors have no positive duty to make sure their clients are obeying the law, provided you get it in writing and protect yourself. And, of course, the agents are not your clients so you owe them no duty at all regarding deduction of tax.
Is there not another aspect here – if you suspect the executors have no intention of disclosing the rents to HMRC, is there an obligation to report such suspicions to your firm’s Money Laundering Reporting Officer?
Whilst I agree with Julian that there may be no positive obligation upon solicitors to make sure their clients are taking their advice and obeying the law, the more that is put in writing to “protect” oneself the greater might be the evidence that you suspect their intention is to defraud the Public Purse.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Julian I am not aware that they are married to accountants. I have no reason to believe that they will not carry out their legal duties. On that basis therefore I do not think my firm has any obligation to report the matter to HMRC.
There is something missing here. A tenant or a managing estate agent receiving rent from UK property that is due to be paid to a nonresident landlord needs to register for the Non-Resident Landlord Scheme. We have a small firm that manages family property that is beneficially owned by two UK residents and two others who ceased to be taxed as UK residents this year. There were two options: allow the letting agent to withhold 20% of the total, or register ourselves and withhold 20% of the net rent (after expenses that the letting agent would not know about). We chose the latter and were issued a 15-digit payment reference and starting at the end of this month will receive quarterly returns of tax due (form NRLQ). For a quick education and access to all forms, query ‘HMRC NRLY’ in a search engine. If you look at form SA105 Box 21 you will see a place to take credit for “Tax taken off any income in box 20”. I admit it’s a nuisance to operate the NRLY scheme and once on their mailing list it may not be easy to get off. But anybody holding rents for a nonresident either has to get an exemption letter from HMRC (one of the forms listed) or withhold and pay over tax. Those abroad with a history of having filed returns and paid tax on time should have no trouble getting an exemption from withholding. That was my personal experience when I went abroad and rented out our UK home. And I hadn’t even been a taxpayer before: I was in the UK as foreign diplomat. Thereafter we filed SA105 & SA109, or whatever were their equivalents in 1983.