If you are a landlord in most cases you should be declaring your rental income to HMRC on a self assessment tax return.
The tax office knows that some landlords don’t declare the income they should and have set up the Let Property Campaign so people can make a voluntary disclosure of unpaid liabilities.
The campaign includes non resident landlords who don’t live in the UK.
What does ‘making a voluntary disclosure’ to HMRC mean?
If you have made any income and not paid enough tax on that income, either deliberately or by making a legitimate mistake, you can ‘disclose’ this to HMRC, pay what you owe and get your tax affairs straightened out. A voluntary disclosure carries lower fines than if HMRC initiates a compliance check or inquiry into your tax situation – a kind of tax-paying amnesty.
What is the ‘Let Property’ Campaign?
This is a voluntary disclosure scheme that is only for UK landlords with residential properties and has specific terms. It is an opportunity to avoid the heavier penalties that HMRC can impose for tax avoidance if you disclose unpaid tax and pay within 3 months.
Who is not included in the Let Property Campaign?
- taxpayers who are disclosing income of a trust or company
- people who need to pay Inheritance Tax
- non-residential property landlords, such as storage facilities or shops
If you are in the last category, then you need to call the Campaigns Voluntary Disclosure helpline on 0300 123 1078. If your situation involves the first two categories, then write to:
Trusts & Estates Risk Team
HM Revenue and Customs
Ferrers House
P O Box 38
Castle Meadow Road
Nottingham
NG2 1BB
Who is the let property campaign for?
Basically, the Let Property Campaign is for UK landlords with residential property in the UK and abroad. If you rent out property in any of the following ways, then you need to inform HMRC and pay tax on that income.
- Rent out UK property while you live in another country for more than half the year
- Let holiday accommodation
- Rent to mobile workers or students
- Single or multiple properties
- If rent from letting a room in your home exceeds £4,250 per year
What To Do
Don’t panic – there’s a way out. It is an anxiety inducing situation to be in, but here are your five steps to freedom from tax stress.
- Notification
This just means tell HMRC that you want to make a disclosure of unpaid tax on your rental income through the Let Property Campaign. You should do this part as soon as you realise that there is a discrepancy between the tax you have paid on your rental income and the tax you actually owe.
It’s easy to make this notification; you can either phone the Let Property Campaign helpline or complete a notification form. You can only give notification about your own tax situation; even married couples must make separate notifications.
If you’ve got ahead of yourself and discover that you don’t need to make a disclosure after sending HMRC a notification, then you just need to call the Let Property Campaign helpline as soon as possible.
Once HMRC get your notification they will send you a Disclosure Reference Number (DRN) and a Payment Reference Number (PRN) that you use throughout the rest of the disclosure process.
- Disclosure
Obviously, tell HMRC everything they don’t already know about your tax, income, gains and duties. You have three months from the date that HMRC accepted your notification to submit your disclosure, which requires the inclusion of your DRN number. You can find the disclosure form at GOV.UK and can submit it online, or by post.
In order to benefit from the terms and conditions of the Let Property Campaign, you must settle your tax bill on submission of your disclosure form. If you know you cannot pay the full amount, then you must contact the Let Property Campaign Helpline to organise a payment plan before you send you disclosure.
- Offer
This is part of Let Property’s terms of conditions and means that you are bound to make full payment of all that you owe to HMRC. It is legally binding.
- Payment – of tax bill and any penalties incurred
Most people seek professional help from a tax expert when compiling their disclosure information so that they make the correct payment. You will need to pay income tax on the taxable income you have previously undeclared to HMRC. (Total rental income – allowable expenses = taxable income.) If you have made a loss, then there is no tax to pay.
The rate of tax you pay depends on your overall income that is over your Personal Allowance. HMRC do provide an online Tax Calculator to help you work out what you owe, but you need to read the instructions carefully as it isn’t appropriate to all financial situations. It is not possible to speak to HMRC about your individual circumstances.
The payment situation is further complicated as the reasons why you have failed to pay determine how many years you need to disclose.
For example:
- “Deliberately misleading” HMRC by not providing any information or lying about your total income will see you having to pay a maximum of 20 years’ worth of back taxes.
- Being “careless” when filing your tax return and therefore paying too little tax means your bill will can be backdated for 6 years.
- If you have “Taken reasonable care” during the Self-Assessment filing process and met the deadlines then yours will be capped at 4 years.
Interest
You also owe interest on any tax that is due, charged at a daily rate and must be included in your disclosure.
Penalties
HMRC allocates fines on a sliding scale that is a percentage of your tax bill. If you submit a disclosure as part of the Let Property Campaign then it will be 20%, 10 % or 0% of your total tax owed. Outwith this scheme, this can run to 100% and even as high as 200% for properties that are offshore. So the Let Property Campaign offers the best terms for resolving your tax disclosure.
- Provide all the information HMRC need
You are required by law to keep accurate business records for all income and, at a bare minimum, you will need to produce bank statements showing your rental income.
Positives to being part of the Let Property Campaign:
- The campaign is open-ended so you don’t have another ‘submit disclosure’ deadline to meet.
- You will be able to take advantage of the best terms for rectifying your tax situation.
- You will be subject to lower fines than if HMRC initiate an unpaid tax inquiry into your rental income.
- The sooner you make a disclosure, the less chance there is of HMRC finding out themselves and the more believable it is that you initially just made an honest mistake.
Consequences of not disclosing tax you owe from property income:
- Higher fines
- Possibility of subsequent criminal proceedings
- Could be included in the Deliberate Defaulters List – which is publicly published by HMRC
HMRC have more powers than ever to access payment records between landlords and tenants and other details relating to individual’s financial affairs. They are under a lot of public pressure from the government to crack down on tax avoiders, so it seems to be a case of not ‘if’ but ‘when’ you are caught.
It is much less stressful to take control of the situation yourself, seek expert tax advice and submit a notification. Coming clean through the Let Property Campaign is certainly the best option for those with unpaid tax on rental income.
