HMRC’s Let Property Campaign provides landlords who owe more tax from the letting of residential property, in the UK or overseas, an opportunity to rectify mistakes in previous years’ tax returns and bring their tax affairs up-to-date.
Inflation and the Bank of England base rate have been in the news pretty constantly for the past year. Whilst average inflation reportedly dropped to 10.1% last month, the bank of England base rate is currently 4.00% – its highest in the past 14 years.
Private homeowners and landlords are scrambling to renegotiate mortgage deals and a recent conversation with a mortgage provider indicates that demand has dropped off considerably compared to this time last year.
With no end in sight for the cost of living crisis (it was reported last week that the UK should narrowly miss recession) landlords are faced with the decision of increasing rents to cover additional mortgage costs (and risk losing tenants unable to afford such increase), swallow the increase and thus reduce their profits, or sell the property.
Given the Capital Gains Tax (‘CGT’) annual exemption is dropping from £12,300 to £6,000 at the start of the new tax year, landlords looking to sell aren’t wasting time. Sales of UK residential property must be reported to HMRC within 60 days of the date of completion with any tax due being paid that same day.
CGT is calculated after income tax and, as most people do not know their total level of income during a tax year, the CGT return is usually an estimate with a final calculation being provided in the individual’s self-assessment tax return (‘SATR’) (due 31 January after the end of the tax year). If the CGT return hasn’t been filed, HMRC cannot accept the SATR calculation.
For legal title over property to transfer, the change must be registered with the Land Registry. This has been known to trigger a notification to HMRC regarding the CGT return and, in some cases, whether the property was ever let.
The let property campaign was introduced by HMRC in 2013 due to the perceived shortfall in the number of landlords declaring rental income and is designed to encourage landlords to voluntarily come forward and disclose rental income.
As discussed in other articles, HMRC have a significant array of information available to them – either by publicly available information (land registry, electoral roll etc) or by making information requests to interested parties (letting agents, utilities providers etc). When pieced together, this information often demonstrates that the legal owner of a property is not necessarily the person occupying that property. This is turns leads HMRC to question who lives there and on what terms.
Nearly 10 years later the campaign is still open, and HMRC are issuing nudge letters to suspected landlords. It should be noted that, once the nudge letter has been sent out, any disclosure will not be ‘unprompted’ and there is a risk of higher penalties, especially if the landlord chooses to ignore the letter and HMRC then decide they have deliberately failed to disclose income.
We know from experience that landlords are continuing to omit rental income from their tax returns – some since before the campaign was launched. It leads me to wonder just how effective the campaign is, do landlords know about it, and if so why are they continuing to bury their heads in the sand? It also makes me wonder what’s taking HMRC so long.
Given the penalties for deliberately failing to disclose income can be as high as 100% of the tax due, we actively encourage landlords to consider their tax obligations.
Call us in confidence for a no obligation conversation with one of our team to discuss the let property campaign and see if we can assist.
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