HMRC Let Property Campaign

You may recall that we briefly wrote about the Let Property Campaign back in November 2013 when it had recently been introduced by HM Revenue and Customs (HMRC).  It has now been in place for over 18 months and during that time we have assisted many new clients with making voluntary disclosures under the Campaign.

The Basics

Any individual who is receiving rent from a property should disclose this to HMRC and include details on their Tax Returns.  It is best practice to do so even if you think you are making a loss on the rental and this can be important further down the line if you later start making a profit, since otherwise it can be difficult to offset those losses due to time limits for doing so.  When mortgage interest rates were higher a few years ago, landlords might have assumed that they didn’t need to do anything because the interest payments exceeded the rent.  This is more unlikely these days so profits may well be generated now and obviously the ability to offset the historic losses will have savings in terms of income tax.

The Campaign is a voluntary disclosure opportunity aimed at landlords of residential property who have failed to disclose rental income on their Tax Returns.  Upon receiving such disclosures, HMRC have the ability to offer the ‘best possible terms’ to minimise any penalties etc. that may otherwise be levied.

HMRC estimates that up to 1.5 million landlords in this sector may be underpaying up to £500 million in UK tax every year.  The Campaign is open to all residential property landlords whether they have one property or multiple properties.

HMRC have a number of tools at their disposal which they can use to identify landlords e.g. information from the land registry, lettings agents, mortgage lenders and tenancy deposit schemes.  Don’t assume therefore that HMRC will never find out that you have been renting out a property; they probably will sooner or later and the penalties imposed will be more significant if they discover it first rather than you voluntarily making a disclosure.

Procedure for making a disclosure

The first step to make use of the Campaign is to notify HMRC that you wish to do so which you can do using their online notification form.  A notification must be made for each individual so if a property is owned jointly by husband and wife for example, two separate notifications will be required.

Once the notification form is submitted, HMRC will write to you with a unique Disclosure Reference Number (DRN) which you need in order to make disclosure to HMRC of the full details regarding the previously undisclosed rental income. You have three months from receipt of the DRN within which to make full disclosure and pay any tax and penalties that are due.

As part of the disclosure you must calculate any profit or loss made on the property rental(s) and include details on the disclosure forms.  You will need to know what type of expenses you can offset against your rental income and we can talk to you about this in more detail to make sure you make a claim for all eligible expenses to reduce your taxable income.

You also need to calculate the amount of tax payable on any rental profits and disclose this on the form.  This will depend on your level of other taxable income in each tax year in question.  You cannot normally include details on the disclosure form for the current or previous tax years and may therefore need to file Tax Returns for those years.

What about penalties and interest?

These must also be calculated when making the disclosure and there is a calculator on HMRC’s website that can be used to work out the interest.     

You must decide what level of penalty applies in your individual circumstances and this will depend on the facts of the case and the reason for not making the disclosure previously.  If you have not  made any previous disclosure of the rental income to HMRC the rates of penalty under the Campaign will usually be 10% or 20% of the tax due.  10% will apply for failing to make disclosure to HMRC of the rental income but not doing so deliberately and 20% will apply if you deliberately failed to notify HMRC.

These penalties are significantly lower than could be charged if disclosure is prompted (e.g. following an enquiry from HMRC) and/or you deliberately tried to conceal the inaccuracy or failure to make a disclosure.

From our experience the Let Property Campaign is proving useful for a number of taxpayers who have come to us having not previously made any disclosure of their rental income.  The whole concept of the Campaign means that HMRC should accept the vast majority of disclosures without any further enquiries which can obviously be beneficial to the taxpayer and is much better than waiting for the Inspector to knock on your door!

The above is for general guidance only and no action should be taken without obtaining specific advice