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Landlords: get your tax affairs in order

HMRC recently revealed some of the most common tax errors that residential property landlords make, however unintentional they may be. The Let Property Campaign provides these landlords with the opportunity to get their tax affairs up-to-date and minimise any penalties.

What is the Let Property Campaign?

HMRC’s Let Property Campaign provides a facility for landlords to report previously undisclosed rental income. Those who make a voluntary disclosure under the scheme will then be offered ‘the best possible terms’ for getting their tax affairs in order. There is no ‘window’ or end date by which individuals must make the disclosure, but those who delay risk higher penalties if HMRC ends up approaching them first.

The campaign is open to all individuals who let out residential property in the UK or abroad. This includes those who are:

  • renting out a single property
  • renting out multiple properties
  • specialist landlords (such as student or workforce rentals)
  • renting out a room in their own home and exceeding the Rent a Room threshold (£7,500 per year in 2017/18)
  • living abroad and renting out a property in the UK
  • living in the UK and renting out a property abroad
  • renting out a holiday home, even if it is used by the individual.

Please note that the scheme is not open to companies or trusts renting out residential property, or to those who are renting out non-residential property such as a garage or a workshop.

Making a disclosure

To take part in the Let Property Campaign the individual or their adviser will need to notify HMRC of their intention to make a disclosure. They will then have 90 days in which to inform HMRC about all previously undeclared income, gains, tax and duties. Full payment is required at the same time as the disclosure, although in some circumstances a staggered payment plan will be agreed.

When calculating the penalty, HMRC will consider the level of co-operation, the time taken to correct the non-compliance and the accuracy of the information provided. Simple mistakes lead to lower (or no) penalties than cases with deliberate withholding of information. However, the tax arrears will still need to be paid.

Avoiding the common mistakes

HMRC recognises that many landlords do not deliberately attempt to mislead the tax authority, rather they may just be unsure of their tax obligations. In an effort to improve awareness, HMRC has published the top ten most common scenarios in which landlords may have undisclosed rental income. These include individuals who have:

  1. Moved in with a partner and rented out their own vacant property
  2. Inherited a property which has then been rented out
  3. Purchased and rented out a property as an investment
  4. Rented out a previously lived in property following a divorce
  5. Relocated to another area due to work and then rented out the vacant property
  6. Moved into a care home and rented out their house to pay for the care home fees
  7. Misunderstood the rules on jointly owned property and declared all of the allowable expenses on the tax return of the higher earner in the relationship
  8. Purchased a property for a family member at university but then failed to declare tax on rent received from an informal agreement
  9. Failed to check the tax implications of renting out a family home after being posted overseas with the armed forces
  10. Incorrectly calculated the deductible element of mortgage repayments.

By contacting us at an early stage, we can help you to avoid the common pitfalls associated with tax compliance and rental properties.

If you believe that you have undeclared income, it is always better to notify HMRC voluntarily rather than waiting for it to contact you. We can make a disclosure on your behalf and calculate any tax owed – please contact us for details.