HM Revenue and Customs (HMRC) introduced the Let Property Campaign over three years ago. At that time, it was expected to last 18 months. However, no end date has been set, writes Pearson May partner Nick Oliver.
Campaigns such as the Let Property Campaign generate revenue quickly and ensure future tax for HMRC by bringing previously non-compliant individuals into the taxation system. 
HMRC is increasingly targeting residential landlords who have not previously made a full disclosure of their income. They have access to data from an increasing number of sources including letting agents, the land registry, mortgage lenders, tenancy deposit schemes and even social media to identify landlords who are not declaring their rental income. If you don’t make a voluntary disclosure now and HMRC finds out later, you could suffer higher penalties of up to 100% of the unpaid tax or even face criminal prosecution.
The Let Property Campaign is an opportunity for landlords renting out residential properties to come forward and report any previously undeclared rental income and expenditure to HMRC, pay any tax that they owe, and benefit from more favourable penalties. It is a voluntary disclosure opportunity. The scheme cannot be used by limited companies or trusts renting out residential property, nor can it be used in respect of the letting of commercial property.
There are a number of scenarios where people may misunderstand the rules and so fail to declare income from letting property to HMRC, on the assumption that there is no need to. Take the following few examples for instance:
Samantha moved to Bath to work and purchased a flat to live in when she got there. After a while, she moved in with her partner. Rather than sell her flat, which she saw as a good investment, she decided to rent it out. The rental income just covered the mortgage payments so she wasn’t making a profit and didn’t inform HMRC. Samantha had not realised that only the interest element of her mortgage repayments are an allowable expense for tax purposes. Therefore, she should have told HMRC about her rental income and paid tax on her rental profits.
Rob has purchased a flat for his son, Alex, as his accommodation while he is at university. Rob is responsible for the utility bills and mortgage payments. Alex makes no payments regarding the flat to his father. It is relatively spacious and two of Alex’s friends move in with him, paying rent to Rob. As the arrangements with the flatmates are informal, Rob feels he is doing them a favour and believes that such informal arrangements do not give rise to taxable income. However, Rob needs to declare the income to HMRC after deducting allowable expenses. Those expenses will need to be adjusted further to exclude Alex’s share.
Jennifer has moved in to a residential care home and is renting out her former home through a letting agency who she believes would have told her if there was tax to pay. As Jennifer does not make any profit from the rents (they all go to pay her care home fees) she believes she does not have to return the income to HMRC. However, Jennifer does need to declare the rent to HMRC. This is because, although she uses all the income from the letting, that use is private and not an expense of her letting. She can deduct allowable expenses and any fees paid to the letting agency.
These are just a few examples of relatively common misconceptions, but make no mistake, if you receive income from property then the onus is on you to correctly declare that income and pay any tax due to HMRC within the required timescales.
The first step to make use of the Let Property Campaign is to notify HMRC that you wish to do so, which can be done using their online notification form. A notification must be made for each individual so if a property is owned jointly by husband and wife for example, two separate notifications will be required.
You then have 90 days to make full disclosure and pay any tax and penalties that are due.
As part of the disclosure, calculations of any profit or loss made on the property rental(s) must be prepared for the relevant years and included on the disclosure forms. The amount of tax payable on any rental profits must also be disclosed on the form. This will depend on the level of your other taxable income in each tax year in question.
You must also calculate the penalties and interest payable when you make the disclosure. You are asked to decide the level of penalty that you consider should be charged. This will depend on the facts of the case and the reason for not making the disclosure previously.
We have assisted many new clients with making voluntary disclosures under the Let Property Campaign. We can ensure that you make a claim for all eligible expenses to reduce your taxable income and prepare computations of tax, interest and penalties to be disclosed.
The above is for general guidance only and no action should be taken without obtaining specific advice.
