Let Property Campaign: how to disclose undeclared rental income

Have you recently found out that you owe tax on your rental property? You are not the only one in this situation, and HM Revenue and Customs offers a structured way forward through the Let Property Campaign. Whether you are an accidental landlord or simply made an administrative mistake, addressing it now is the best way to keep potential penalties to a minimum. If your disclosure involves several years, missing records, offshore income or large penalties, speaking to a specialist tax solicitor may help you avoid costly mistakes.

Key Takeaway: What is the HMRC Let Property Campaign?

The Let Property Campaign is an official HMRC initiative allowing landlords to voluntarily declare unpaid tax on residential rental income from property in the UK or abroad.

By coming forward proactively, individuals may benefit from lower penalties, reduce the risk of criminal prosecution and arrange payment with HMRC.

What is the HMRC let property campaign?

Before looking at the procedure, here is a quick summary of the initiative.

The HMRC Let Property Campaign is a voluntary disclosure opportunity for individual landlords who owe tax on residential property in the United Kingdom or abroad.

• The Goal: To help you correct your tax affairs under more favourable terms.
• The Process: You notify HMRC of your undisclosed income, and you then have 90 days to calculate and pay what you owe.
• The Risk: If HMRC finds the errors later, you may face much higher penalties or potential prosecution, regardless of whether your mistake was accidental or deliberate.

How does HM Revenue and Customs identify undeclared landlord income?

How does HM Revenue and Customs find undeclared rental income? The authorities cross-reference multiple data sources to identify individuals who are not paying the correct tax.

Here is how your data is tracked:

• HM Land Registry records: HMRC checks property ownership data against self-assessment tax returns to find individuals who own multiple homes.
• Letting agents and platforms: Data from estate agents, tenancy deposit protection schemes, and holiday letting websites is regularly reviewed.
• Financial and government institutions: The authorities legally access information from banks, other government departments, and overseas tax bodies.

HMRC continues to expand its data collection methods to locate landlords who have failed to declare their income.

Who needs to disclose rental income to HMRC?

You must disclose rental income to HMRC if you receive revenue from residential properties and have failed to pay the correct amount of tax. This applies to various situations, regardless of your original intent or professional status.

To clarify who is eligible, here is a detailed table highlighting the conditions:

The Let Property Campaign is open to individual landlords, agents acting for clients, and personal representatives disclosing for someone who has died.

Key rules regarding your disclosure:

• Individual forms: You cannot include multiple people on a single disclosure. For example, a married couple must each complete a separate form.
• All income included: You must declare all previously undisclosed income. This includes rental profits, untaxed earned income, investment income, and capital gains tax.

How do I submit an HMRC rental income disclosure?

Navigating the Let Property Campaign requires you to follow a specific process and meet strict deadlines to secure the more favourable terms.

Here is the step-by-step process for compliance:

• Notify your intention: Inform HMRC as soon as you realise you owe tax. You do not need to provide income details yet. HMRC will send you a unique disclosure reference number and a payment reference number.
• Prepare your disclosure: You have 90 days from the date of your notification acknowledgement to gather your financial records and calculate your income.
• Manage missing records: If some records are missing, use a best estimate for the undisclosed income. Keep your calculations, as HMRC may ask you to explain your figures.
• Submit and pay: Ensure that HMRC receives both your completed disclosure and your full payment by the deadline stated in your notification letter.

Calculating unpaid tax, HMRC property tax penalties, and interest

Calculating your outstanding liability involves determining your annual rental income, deducting allowable expenses, adding daily interest, and applying the correct penalties.

• Allowable expenses: You can deduct the day-to-day running costs of your property from your rental income to lower your taxable profit.
• Rental losses: If you made a loss in any given year, you do not include that year in your disclosure. You can usually carry the loss forward to offset future rental profits.
• Interest and penalties: Interest is calculated daily from the original due date until payment is made. Penalties can reach up to 100 percent of the tax due for UK income, and up to 200 percent for offshore income.

The number of years you must declare depends on the reason for the error:

• Reasonable care: If you took care but still made an error, you only pay for a maximum of 4 years.
• Careless error: If you paid too little due to a lack of proper care with your records, you must pay for a maximum of 6 years.
• Deliberate action: If you intentionally misled the authorities, you must pay for a maximum of 20 years.

UK examples of let property campaign scenarios

Many individuals become landlords without realising the complex tax implications involved.

Here are four typical examples of common landlord errors:

• Inherited property: You inherit a home and rent it out through an agent, but fail to realise that the rental profits must be declared to HMRC. It is also wise to check your liabilities under the inheritance tax threshold rules during estate management.
• Moving in together: You rent out your old flat after moving in with a partner. You mistakenly assume there is no taxable profit because the rent only covers the mortgage, unaware that principal mortgage repayments are not an allowable expense.
• Divorce: A separating couple rents out their jointly owned house but fails to declare their respective shares of the income. Both individuals must now report their income separately.
• Relocation abroad: You move overseas for work and rent out your UK family home, but fail to check the specific tax rules and disclosure requirements for non-resident landlords.

FAQs

What happens if I cannot pay the full amount of tax I owe?

If you cannot pay in full within 90 days, contact the Let Property Campaign Helpline before submitting your disclosure. HMRC will review your finances and may agree a payment plan. Do not submit your form or payment before speaking to them.

How do I disclose undeclared rental income?

Notify HMRC first to receive your unique reference number. You then have 90 days to calculate your tax, complete your disclosure, and pay the tax, interest, and penalties due.

Can I claim rental losses during my disclosure?

Yes. If allowable expenses exceed rental income, you can report a loss and carry it forward to offset future rental profits. Professional advice can help ensure calculations are correct.

Disclosing your unpaid taxes through the official campaign is the most secure way to regularise your financial situation and avoid severe legal repercussions. By acting proactively, gathering your records meticulously, and calculating your dues accurately, you can benefit from significantly reduced penalties.

Given the complexity of the rules surrounding allowable expenses, property tax penalties, and historical liabilities, seeking professional guidance is essential. A specialist solicitor will help ensure your disclosure is as complete and accurate as possible, allowing you to resolve your tax affairs with greater confidence and peace of mind.

This guide provides general information only and does not constitute legal advice.

Missed your deadlines? Do not face the tax authorities alone. If your case is complex or you are facing large penalties, Qredible’s network of specialist solicitors can help you understand your options and seek the best possible outcome.

KEY TAKEAWAYS:

• The campaign is exclusively for individuals letting residential property who have unpaid taxes, including accidental and overseas landlords.
• Voluntary disclosure grants you 90 days to calculate and pay your dues, which may result in much lower penalties and reduce the risk of criminal prosecution.
• A specialist legal professional will ensure your calculations are accurate, protect your rights under the European Convention on Human Rights, and help negotiate the lowest possible fines.