In Sayrun Lamuth v HMRC [2025] TC09578, the First Tier Tribunal (FTT) found that a taxpayer who did not understand the reporting requirements for her share of rental income had a reasonable excuse for the late payment of tax.
Sayrun Lamuth (SL) and her ex-husband were Joint owners of a rental property that yielded income.
- They agreed that 100% of the rent would go to him, provided he then put it in Trust for their children.
- HMRC had written to SL's ex-husband, a non-resident, granting him approval to receive his rental income with no tax deducted under the Non-resident landlord scheme.
- SL took the letter from HMRC to mean that the rental income she was receiving was not liable to tax in the UK.
- SL wrote to HMRC asking for clarification that she was correct not to report the rental income on her Self Assessment return. HMRC failed to respond.
- During a telephone conversation with HMRC, SL stated that she was in receipt of rental income. She was then advised to complete tax returns, which she did.
- SL was unaware of how to pay the tax due. She called the Debt Management team for advice before making payment of the tax liability in full.
- HMRC issued Late payment penalties totalling £1,050.
- SL Appealed to the First Tier Tribunal (FTT) on the basis that she had a Reasonable excuse due to misunderstanding her tax obligations.
- SL believed that since she was passing her half of the rent to her husband, there was no requirement to declare the income on her tax return.
The FTT applied Christine Perrin v HMRC [2018] 0156 (TCC), which outlines the approach to take when considering 'reasonable excuse':
- Establish the facts that give rise to the reasonable excuse.
- Decide which facts are proven.
- Do the facts amount to a reasonable excuse?
- Decide whether the taxpayer remedied the failure without unreasonable delay.
The FTT found that:
- SL was genuinely mistaken about the requirement to declare her rental income due to the letter she read from HMRC and the fact that she was giving away her rental income to her ex-husband.
- SL's mistaken belief that she did not have to report the rental income, along with her attempts to enquire as to the correctness of her belief, amounted to a reasonable excuse.
- It was objectively reasonable for SL to conclude that the rental income did not need to be declared, given that she had asked for advice and received no response.
- It was objectively reasonable for SL to wait until a tax calculation arrived from HMRC before making payment of the tax.
- SL's reasonable excuse ended when the tax calculation arrived from HMRC; lack of knowledge on how to pay the tax was not accepted as a reasonable excuse thereafter.
- A special circumstance would have been given to reduce the penalty to nil had a reasonable excuse not been granted due to HMRC's failure to respond to SL's request for advice.
The appeal was allowed.
Useful guides on this topic
Penalties: Late payment
What penalties are charged when tax is paid late?
How to appeal a tax penalty (Subscribers Version)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?
Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?
Non-Resident Landlord Scheme
What is the Non-Resident Landlord scheme? How does it work? Who does it apply to? How can I apply to receive rent without a withholding tax deduction?
Joint property: Legal v beneficial ownership
What is the difference between legal and beneficial ownership? What are the tax consequences? Are the rules different for married couples and civil partners?
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