If you earn income from residential properties, in the UK or abroad, you need to declare this income on your tax return. Not doing so can result in major penalties or fines. However, there is a way out: HMRC has started its Let Property Campaign again for the 7th year, since beginning in 2013. This allows UK landlords to come forward and voluntarily disclose unpaid tax on rental income that they have not paid. This disclosure should always be assisted by a qualified tax professional, as with this voluntary disclosure comes lenience when it comes to fines and penalties. Given that it’s possible to make significant savings on these penalties, it’s important to get your declaration right the first time around!
In the last year alone, nearly 400 overseas-based landlords confirmed to HMRC that the tax owed on their rental income was not declared or paid. This is a 61% increase on the approximately 250 declarations that came forward in the previous year. This is an indicator that the campaign is working, and that landlords who have currently not declared rental income should consider doing so.
HMRC have recently sent a number of letters to landlords whom they have information on but have not disclosed any information. These landlords are discovered by HMRC using a large database, combined with an artificial intelligence program called “Connect”. Activity can be cross-referenced from multiple sources including tax returns that have disclosed the ownership of property, the client lists of estate agents, and land registry and ownership data. Connect can also use information from social media profiles as well as spending patterns that indicate tax evasion. If the landlord does not respond within 30 days of receiving the letter from HMRC, they may be liable to face penalties based on what they owe. In addition, they could be subject to criminal investigation for non-compliance with tax declaration laws.
The let property campaign applies to landlords who have residential properties either in the UK or abroad. This includes landlords who have multiple properties, single rentals, holiday lettings, student accommodation, or rent out a room in their own home for more than the Rent a Room Scheme threshold. It does not apply to landlords who are letting out non-residential properties such as shops, garages, and lock ups. It does also not apply if you are renting out property on behalf of a company or a trust.
The process of declaring rental property income under the Let Property Campaign has several steps. Firstly, you need to appoint a tax advisor to notify HMRC know that you want to participate in the Let Property Campaign. Then disclose any income, gains, tax, or duties that you owe that you have not previously disclosed. Make sure that you engage a tax professional to calculate how much you owe, as well as determining how big your offer of fines and penalties should be. Ensuring that you get this process right will save you a lot of effort (and potentially money) further down the track. Once you have worked through your disclosure and offer with a tax professional, formally offer the disclosure and payment to HMRC, then pay what you owe. You can also voluntarily declare at any time outside of the Let Property Campaign, but you may be hit with heavy sanctions if HMRC has contacted you as part of the campaign and you do not respond.
When you make your disclosure, you and your tax advisor can work out how much you should offer with regard to penalties you think you should pay. To determine exactly how much you will owe, HMRC will take into account the level to which you have helped them, and how significant your previous evasion has been, as well as the reasons behind why you did not declare income before. For example, a simple oversight or mistake will be treated much more favourably than purposeful lack of declaration. In some cases you may not have to pay any penalty at all. If you do have to pay penalties it will almost certainly be less than what you would have to pay if HMRC finds out that you are avoiding tax: under the Let Property Campaign the rates are rates are 0%, 10%, 20% depending on the circumstances, while without disclosure under the campaign the penalties can be up to 100% of your total tax liability. If you made a careless mistake, HMRC will look back up to a period of 6 years in determining what you owe. If you do not come forward and HMRC finds out you did not pay enough tax, they can look back up to 20 years.
Once you determine what you owe, you should pay within 90 days of declaring and offering your payment. If you cannot pay the full amount, let HMRC know as soon as possible, and do not make any payments until you have discussed your financial position with HMRC. They will take into account how and when you intend to pay, what your current income is, assets you have, and any debts that you have. They can then come to an agreement with you for, for instance, a payment plan.
The great news is that for certain individuals whom rental profits fall below or within their UK personal allowance entitlement, then you can register for the campaign complete all the work and get no penalties and no tax to pay. It is a way of completely bringing your tax affairs up to date in one exercise.
Taking advantage of the Let Property Campaign is a good way to get in line with your tax liabilities, while removing the full hit of potential penalties and fines. If you have undisclosed rental income, or have received a letter from HMRC, be sure to get your affairs in order as soon as possible, or risk facing even higher fines.
Finally I have recently seen letters from HMRC addressed to tenants of certain rental properties asking them to hold back rent due to the landlord as they have failed to get in touch with HMRC regarding their tax affairs because they are overseas. This is very serious and is a sign of HMRC and UK’s intent to claw back unpaid taxes. Taking from the Telegraph an HMRC spokesmen said: An HMRC spokesman said: “These letters form part of targeted compliance activity to ensure that offshore owners of UK property are aware of and comply with their UK tax obligations. HMRC is contacting both the overseas owner and any occupant of the property to provide information and help put right any innocent errors made. We understand that some areas of tax can be complex and we want to help customers pay the right tax at the right time, ensuring the continued funding of vital public services in the UK.
It is vital all landlords comply as it is only a matter of time before HMRC get in touch for failure to comply
At Fusion Consulting we have successfully helped over 500 individuals complete the let property campaign and bring their tax affairs up to date.
