THE TAXMAN IS CLOSING IN ON YOUR UNDECLARED LETTINGS INCOME

There are lots of reasons why people might have failed to declare income from letting property to H M Revenue and Customs (HMRC); it might be that your spouse has declared all of the income because they look after the lettings, but if the property is held jointly by husband and wife then in most cases the income should be split 50/50 and declared on each of their Tax Returns; it might be that you have appointed a Letting Agent and thought that the agent dealt with everything including the tax; or maybe it’s simply that HMRC hasn’t asked you for details of your rental income. The list is endless, but make no mistake, if you receive income from property then the onus is on you to correctly declare that income and pay any tax due over to HMRC.

If you are breaking out in a cold sweat whilst reading the above, then rather than burying your head in the sand and hoping that the problem will go away, there is an opportunity to stop worrying about what might happen, have certainty about what tax you owe and get things right for the future - this opportunity comes in the form of a Let Property Campaign.

HMRC are increasingly making use of their powers to request information from certain bodies, and in recent years, this has included a requirement for Letting Agents to disclose details of their clients and the level of rents received etc.

Even if you don’t use a Letting Agent, HMRC potentially have a number of other tools at their disposal which they can use to identify landlords e.g. information from the land registry, mortgage lenders, tenancy deposit schemes and even social media. 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.

HMRC’s Let Property Campaign has been in force now for over two and a half years and during that time we have assisted many new clients with making voluntary disclosures under the Campaign.

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. The Campaign is open to all residential property landlords whether they have one property or multiple properties.

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 can be done 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. We have lots of relevant experience and can guide you through the process.

WHAT ABOUT PENALTIES AND INTEREST?

These must also be calculated when making the disclosure and 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. 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 for 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. It means you can sleep easy at night 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.