Time for residential landlords who haven’t disclosed their income to 'fess up and pay up, says Calvin Roll, of Lovewell Blake
There are all sorts of reasons why people become residential landlords.
For some, it’s a major investment decision which will form a big part of their income; for others, the reasons are more ‘accidental’ – for example when someone inherits a property on the death of a relative and decides to rent it out while they consider their long-term options.
No matter how or why you become a landlord, one thing is always the same: any income (after allowable expenses) you make from the property has to be declared to HMRC, and tax paid on it.
Whilst ‘professional’ landlords are (generally) diligent in their tax reporting, this is something that can slip through the net with ‘amateur’ landlords, whether through genuine misunderstanding of the rules, or simple forgetfulness. But if HMRC launches an investigation into your tax affairs and finds out you haven’t declared the income you should have done, the penalties can be draconian.
Fortunately, the Revenue has now launched a campaign to encourage those who have fallen behind with the residential property tax affairs to get them in order, and in doing so take advantage of the best possible terms available when it comes to penalties for late disclosure and payment.
The Let Property Campaign is an opportunity for all residential landlords, whether of property in the UK or abroad, to get up-to-date with their tax affairs. If you decide to make a full and voluntary disclosure of all unpaid liabilities, you will still have to pay the tax owed, together with interest, but the penalties you will pay on top of this will be lower than if HMRC raised an enquiry or compliance check without that disclosure.
In other words, it pays to be open and honest, rather than waiting to be found out!
To take part in the campaign, you have to register with the HMRC that you want to make a disclosure. Once you have done so, you have 90 days to make that disclosure and pay up; provided you do so, HMRC cannot open an enquiry into your affairs once you have registered.
You will have to tell them why you have failed to disclose your income, and that reason will have a big bearing on what you will have to pay. In general, if the lack of disclosure is due to a genuine mistake, and you can show you have taken reasonable care, your liability will be limited to four years; if it’s because you didn’t take reasonable care, that increases to six years; if the Revenue considers you have deliberately misled them about your income, they can go back as far as 20 years – although HMRC will still give you credit for making an unprompted disclosure.
Unusually, there is no time limit to take part in the campaign, but it’s important to note that the longer you leave it, the greater the likelihood of HMRC launching an enquiry into your affairs – and once that has happened, you are no longer eligible to take part in the Let Property Campaign.
So the advice is to bite the bullet, ‘fess up and pay up – not only will you remove the worry of a full HMRC enquiry, but it will cost you less in the long run.
-- Calvin Roll is a tax specialist at Lovewell Blake’s Bury St Edmunds office