Disclosure Opportunity for Landlords with Undisclosed Rental Income

HMRC have launched a new tax disclosure campaign aimed at landlords known as the "Let Property Campaign".

In return for making a disclosure under the campaign, taxpayers can expect to receive favourable terms such as reduced penalties.

The Let Property Campaign does not have a deadline for making disclosure, however it is expected that in the coming months HMRC will concentrate on identifying those suspected of not declaring rental profits.

Therefore those who choose not to participate in the Let Property Campaign or delay making a notification of intent to disclose may face an increased risk of a HMRC enquiry or tax investigation.

Who Can Use the Let Property Campaign?

The Let Property Campaign is available to all residential landlords regardless of the number of properties let.

It is also available in respect of rental properties both in the UK and overseas, including holiday homes which may be used by the landlord whilst not let.

The most notable exceptions of those eligible to use the disclosure facility are; landlords of commercial property, trustees and companies.

The Amount of Tax to Pay

The overall aim of the disclosure is to allow taxpayers to bring their affairs up to date and settle any tax due to HMRC.

The taxable rental profits will be calculated based on normal principles (i.e. rental income less allowable costs).

In terms of calculating the tax due, the taxpayer will need to consider how many years of income need to be declared.  Depending on the circumstances this is likely to be a minimum of 4 years, although it could be up to 20 years.

Where the taxpayer does not complete a tax return and has never informed HMRC that they receive rental income, it seems that HMRC believe that the disclosure should go back 20 years (or the date the rental income started if later).

Penalties

HMRC guidance states that taxpayers taking advantage of the Let Property Campaign, can expect to receive the best terms on offer.

In practice this means that the penalty rates will be between 0% and 20% of the underpaid tax with the rate being determined by the nature of the error and how the underpayment arose (i.e. a simple misunderstanding re the rules for deducting expenses resulting in an incorrect tax return, or a deliberate failure to inform HMRC of rental income).

In comparison, in the event of a HMRC enquiry resulting in an assessment of tax, HMRC has the power to impose penalties of up to 200% of the tax at stake.

In addition to penalties, late payment interest will also apply.

What is the Disclosure Process?

In order to benefit from the Let Property Campaign, taxpayers must make their disclosure using a prescribed process:

1. Notify HMRC of their intention to make a disclosure using the notification form,

2. Submit a disclosure using the disclosure form within 3 months of the notification being made.

This disclosure will include a letter of offer setting out the tax, interest and penalties that the taxpayer believe is owed to HMRC.  It is therefore important that these figures are calculated carefully and consideration given to the number of years of the disclosure and the applicable penalty rate.

The underpaid tax should normally be paid at the same time as the disclosure and within the 3 month time limit.  HMRC may consider requests for time to pay where the taxpayer does not have sufficient funds.

3. HMRC will then review the disclosure and make a decision as to whether to accept the taxpayer’s letter of offer.