Landlords who have failed to declare their rental earnings are being warned to pay up or face harsher penalties. HMRC’s let property campaign is targeting widespread tax evasion on property lettings, and estimates that 1m buy-to-let and other private landlords are not declaring their rental income, depriving the public treasury funds of £550m a year. Such initiatives have been a cost-effective way for HMRC to recover tax in a range of sectors, with voluntary disclosures in past campaigns yielding more than £500m since 2007.
In recent years, many people have become "accidental landlords" (e.g. via inheritance or second homes through marriage which people are unable to sell). HMRC believe that taxpayers registered as owning a second property should be three times higher than the current 500,000, with some individuals not declaring their property income and gains.
HMRC’s let property campaign provides landlords the opportunity to bring their tax affairs up to date and get the best possible terms to pay any tax owed.
Although those who come forward voluntarily will still have up to a 20% penalty to pay, plus interest and tax, the alternative can be penalties of up to 100% with the possibility of prosecution. In 2013, a 61 year old landlord who rented out and then sold property (evading £84,000 in tax in the process) was given a suspended prison sentence.
HMRC has the ability to undertake various forms of cross-checking on landlords, including the use of the Land Registry and housing benefits system. Information can also be obtained direct from third parties such as lettings agents and mortgage lenders.
HMRC have said that the campaign is “not about penalising genuine mistakes”.
Whether you are new to the rental business or a long-term landlord, it is always worth a review of your tax affairs to make sure you are up to date with all things tax when it comes to property.
At Armstrong Watson our in-house specialists can help you through any required disclosure to HMRC. We will always look to maximise your personal tax position in respect of tax deductible expenditure and all possible claims for reliefs.
