The Let Property Campaign was launched in Autumn 2013 as part of HMRC’s efforts to clamp down on perceived tax avoidance in the property sector and close the tax gap. The campaign is aimed at individual landlords and provides the opportunity to voluntarily make a full disclosure of any undeclared rental income and tax owed to HMRC.
Before the campaign opened HMRC estimated that there were approximately 1.4 million landlords operating throughout the UK, of which only 500,000 had registered for self-assessment and declared their rental income to HMRC. This leaves approximately 900,000 landlords who hadn’t declared their rental income and HMRC needing an effective way of collecting the tax owed.
If you haven’t yet received correspondence from HMRC or considered making a disclosure you should consider that HMRC has access to a myriad of information on individual taxpayers through their data connection software ‘Connect’. This software allows HMRC to cross-reference information from banks, land registry, companies house, employers, and other third parties at the touch of a button. Furthermore, with over 50 countries already signed up for the Automatic Exchange of Information it is only a matter of time before overseas data is thrown into the mix.
To assist HMRC in their quest to close the tax gap they are also directly targeting lettings and estate agents to request information. Under a statutory request the agent has 60 days to supply the information or face an initial fine of £300 plus an additional £60 per day for continued failure to supply. If they supply incorrect information the fine can be as much as £3,000!
The campaign applies to individual landlords who are letting residential property in the UK or abroad. It is not available to companies or trusts, nor for those letting commercial property. If you are an individual letting any of the following you should consider your reporting obligations:
- Single or multiple properties;
- Specialist rentals such as to students or workforce;
- Holiday lettings;
- Your own home during a period of non-occupancy;
- A spare room in your own home.
Registering with HMRC to disclose income or capital gains under the Let Property Campaign is simple. From the date HMRC acknowledge a taxpayer’s inclusion in the campaign the individual has 90 days to make a full disclosure, after which date the tax must be paid.
Payment plans can be agreed with HMRC but where tax has been underpaid HMRC will apply interest from the date the payment became due to the date full payment is made. Furthermore, where HMRC deem the behaviour which lead to the underpayment to have been either careless or deliberate there will be penalties. The maximum penalty is 100% of the potential lost revenue, although reductions are available where the disclosure is unprompted and the taxpayer assists HMRC in calculating the correct amount of tax due.
The campaign is expected to remain open for some time although we would encourage those with liabilities to come forward as soon as possible to allow you to settle on the best possible terms. If you delay and choose to disclose outside of the campaign HMRC are less likely to be understanding and could issue higher penalties. Indeed, where income has not been declared for a period greater than three years HMRC are less willing to accept that the taxpayer’s behaviour was careless.
Importantly, voluntarily disclosing under the campaign will also give you peace of mind knowing your tax affairs are up to date and could mean you are less likely to be at risk of HMRC approaching you regarding a tax liability and enquiring into your tax affairs.
Whilst the campaign is still open, you may receive a letter from HMRC regarding any tax liabilities you may have. We are aware that HMRC has sent letters to hundreds of private landlords so far. If you have or do receive a letter, please do not hesitate to contact us for advice.
Many people who contact us believe they have no income tax to pay because the rent they charged ‘barely covered the mortgage’. The rules around calculating taxable property income can be complex and have been subject to several changes in recent years – including the rules restricting deductions in respect of finance costs.
If you are unsure of your position you should contact Edge as soon as possible. We can help you understand your obligations and assist with the calculation of tax and disclosure to HMRC. We will negotiate with HMRC on the level of penalties and in agreeing an affordable payment plan if necessary.