The HMRC Let Property Campaign was launched in September 2013 to make it easier for landlords to get their tax affairs up to date. Whilst many landlords have already received a Let Property Campaign letter, there are still many remaining…with HMRC ready to pounce!
As part of the government’s ongoing crackdown on tax evasion and avoidance, the campaign was designed to help landlords who owe tax through letting out residential property to disclose what they owe. As a reward for taking part, landlords are able to take advantage of beneficial terms, including being able to avoid hefty penalties.
When the campaign was set up, the government estimated that 1.5m landlords had underpaid tax up to the value of £500m in 2009 and 2010 alone. The idea was that, in making the campaign simple and targeting specific types of landlord (initially holiday lets, student lets and those who own more than one property), the government would be able to encourage the majority of landlords to take part over time.
This has not proven to be the case, and in the five years since its inception, the HMRC Let Property Campaign has only led to disclosures from three per cent of the landlords originally expected, and only £85m of the estimated £500m has been recovered.
For those landlords who still have not got their tax affairs in order, the scheme is still the least painful way of rectifying any errors or omissions in previous submissions and it is well worth investigating while it is still in effect.
Can you benefit from it?
Most residential property landlords with undisclosed taxes can take advantage of the HMRC Let Property Campaign, including:
- Landlords who own multiple properties
- Landlords with student or workforce rentals
- Landlords with holiday or short term lets
- Those who rent out a room for more than the Rent a Room Scheme threshold
- Those who rent out a property in the UK but live abroad
Many landlords mistakenly don’t declare their rental income because the rent that comes in doesn’t cover the mortgage cost and expenses, meaning that they don’t believe they have any profit to declare. However, you are actually only eligible for tax relief on your mortgage interest and not the capital repayment, so it is possible that you owe tax without realising.
Added to this, some landlords do not realise that the tax treatment of mortgage interest has been changing recently, and is due to culminate in the next tax year with the removal of the ability to deduct any interest payments whatsoever from their rental income, subject to the “reducer” which typically equates to a tax reduction of your mortgage interest multiplied by 20%. This means some landlords who are currently just about keeping their heads above water may start losing money at a significant rate – but still be liable for taxation on their rent payments.
As mentioned previously, the government is currently in the process of cracking down on tax avoidance and is focusing on landlords, meaning that the likelihood is you will eventually be sent a letter from HMRC asking you to declare your income. By getting ahead of it and using the HMRC Let Property Campaign you can avoid the stricter penalties that come from being investigated.
Although the campaign was originally expected to run for just 18 months, it has now been shifted to run indefinitely, meaning that there is no strict ‘disclosure window’ and you are free to take advantage of the campaign at any time.
How does the HMRC Let Property Campaign work?
The Let Property Campaign is a complex process, and you would be well advised to work with a property tax advisor – such as ourselves – to ensure that you have done everything that you need to do, and declared everything that you need to declare. Although the campaign is designed to allow you to disclose your income without penalty, if you don’t disclose everything, there is still the chance that you will be penalised.
To take part, you need to:
- Notify HMRC of your intention to use the Let Property Campaign
- Work out and disclose to HMRC the full financial information relating to your rental property. You will need to include the income, any gains, tax and duties.
- Contact HMRC with a formal offer for payment, which will essentially be the sum of what you have worked out that you owe.
- Pay your tax bill in full. You may pay all of this at once but, if you don’t feel that you can afford to make a lump sum payment, you may be able to agree an instalment plan with HMRC.
How to notify and disclose to HMRC
The easiest way to notify HMRC that you intend to use the Let Property Campaign is to use the Digital Disclosure Service (DDS) on the HMRC website. HMRC will then write to you with your unique Disclosure Reference Number (DRN) which you’ll use whenever you contact the service.
Your disclosure form can be completed as soon as you have your DRN, and must be within 90 days of you receiving this reference. To disclose you will need to:
- Calculate what you owe.
- Work out any other liabilities that you have not previously informed HMRC about.
- Work out the interest that you owe.
- Work out what penalties you need to pay.
- Complete a declaration. This should only be filled out once you are certain that all of the information you have provided in your disclosure is accurate.
- Make an offer. This will be for the full sum that you have worked out that you owe, as well as any interest and penalties.
What if you don’t take part in the campaign?
If it turns out that you have been underpaying tax, or have rental income that you haven’t declared at all, it is likely that you will be discovered and forced to pay the tax eventually, as well as a hefty penalty fee. Penalties vary in amount, depending on why HMRC believes you have failed to disclose. If it seems to be a genuine mistake or miscalculation you will pay less than if you appear to have deliberately hidden income. Penalties can be up to 100% of the unpaid liabilities (or 200% for offshore income).
The HMRC Let Property Campaign allows you to come forward and report potential inaccuracies in your previous tax returns, without having to worry about being fined or subject to criminal investigation.
Landlords who may not have paid the right tax are identified by:
- Comparing your UK tax history with any information HMRC already has about you. This may include information you have sent as part of a previous tax return.
- Using other tax information to find out about payments made to or from you, which could be gathered from Land Registry, letting agents etc