HMRC has recently announced its intention to seek out previously undeclared or under-declared rental income. Individuals who are believed to owe tax from rental properties will be sent a letter inviting them to disclose details of previously undeclared or incorrectly reported income.

Taxpayers urged to respond

Recipients of these letters are being urged by tax specialists to take them seriously, as HMRC requires a response within 30 days of the letter’s issue date. Any resulting disclosures will be treated as ‘prompted’, which means there was a failure to voluntarily disclose the income and as such a higher sum may be charged as a penalty. This will be calculated as a percentage of any outstanding tax liability.

No response may result in formal action, where HMRC has reason to believe that tax has been underpaid. This could mean even higher penalties being applied or, in extreme situations, the initiation of a criminal investigation.

Take time to review records

The letter will be headed Let Property Campaign, and should be taken as an opportunity to review income records. Seeking the help of a financial advisor or tax specialist may be in order to confirm that full and accurate disclosure has been made to HMRC.

Such specialists can agree the correct position with the tax office and negotiate a settlement that takes into account any interest or penalty charged. Misunderstandings that may have arisen can also be resolved on your behalf, saving you considerable time and stress.

Pre-empt the letter

The campaign also enables landlords who want to voluntarily disclose an incorrect position to do so. This can potentially lead to a reduction or waiving of penalties, depending on the reason for not disclosing sooner. In such cases, the individual should fill out a Digital Disclosure Service form and await a Disclosure Reference Number from HMRC.

If you cannot pay the outstanding tax in a lump sum, you may be able to spread your payments. This will depend on your circumstances though, and whether HMRC deems it appropriate to spread the costs.

Who the campaign applies to

The campaign is designed to encourage any individual landlords who are renting out residential property to disclose any undeclared tax. This includes those who are:

  • Renting out single or multiple properties
  • Renting out a room in their main home where the income totals more than £7,500 a year
  • Living abroad and renting out their UK property
  • Living in the UK and renting out an overseas property
  • Renting out a holiday home

If you fall into any of the above categories and suspect you may have unpaid tax, we suggest seeking advice from a tax specialist and, if necessary, declaring it via the Let Property Campaign.