TPP Your Q answered

Q

I have client that is receiving pension here in U.K. but lives and is a tax resident in Portugal. She is also renting out  property here in U.K.

Does she needs to do tax return here in U.K. regarding the property income?

A

Yes, as the client is receiving UK sourced income, this Is taxable in the UK, and reportable on their Self-Assessment tax return.

As a non-resident landlord, the client should register for the Non-Resident Landlord Scheme (NRLS). Under this scheme, letting agents or tenants are required to deduct 20% tax from the rental income before paying it to the landlord unless HMRC approve their application to receive the rent without tax deductions.

To receive the rental income gross, your client will need to complete the NRL1 form and submit it to HMRC.

Even if tax is deducted under the NRLS, your client must report their rental income annually through a UK Self-Assessment Tax Return.

Q

Saw this online under  “CAN YOU DECLARE A DIVIDEND AND NOT PAY IT.” Retained Earnings – Companies can work on retained earnings. No need to pay out money as a result no tax implications

Can you explain what it means?

A

In general the tax treatment of the dividend depends on the type that is paid/declared ie:

1. Interim dividends are due and payable when physically paid. A resolution to pay an interim dividend does not create a debt until the dividend is paid. The shareholder is taxed when the dividends are physically received.

2. Final dividends are legally due when declared unless a later date for payment is specified, in which case they are due on that payment date.  

If the client has already taken the funds from the business during the year and this was originally treated as a directors loan but now being treated as a distribution then this is reportable as a dividend.

If the client has what is simply a repayment of a loan then there are no tax consequences.

Q

We have a client who has an open enquiry by HMRC into their personal tax return for 2022/23 due to a disposal relief claim. We are happy with answering most of the questions, however one question HMRC have asked is as follows:

“Provide the full name and address of each company in which you were a shareholder”.

I suspect this is HMRC fishing for more information, but I am inclined to not provide this information as it has no affect on the disposal claimed in the year, any dividends from any shares would be declared as and when received, and any CGT declared if there were a sale in future.

I would be interested to hear your thoughts on if you think this information would be required or not.

A

HMRC should only be asking for information where it is reasonably required by the officer for the purpose of checking the taxpayer’s tax position.

The definition of what is “reasonably required” is going to vary from person to person, and HMRC provide guidance to their staff which is publicly available at CH21620.

In your circumstances, is a list of all shareholdings owned by your client reasonably required to determine their tax position? You may argue not, as holding shares in a company doesn’t impact someone’s tax position until such point as income or gains occur in respect of those shares.

If you think HMRC are on a fishing trip looking for further information, you are well within your rights to push back and refuse to provide the information requested on the grounds you do not believe it is reasonably required. If HMRC disagree, they may issue a formal notice under Schedule 36 FA2008 requesting the information, which gives your client the right of appeal to HMRC in the first instance and subsequently to the First Tier Tribunal.

Next Steps

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