There has been much in the press recently relating to HM Revenue & Customs (HMRC) sending over 40,000 letters to landlords who it suspects are not paying enough tax. Initially, HMRC is asking landlords to report unpaid tax on rental profits and the sale of letting property with the incentive of lower penalties for those who do so.
Buy to let landlords living in London, East Anglia and South Wales are allegedly among the first to be targeted. Around 5,000 landlords have already received a letter from their tax office giving 30 days to respond to requests to confirm their tax affairs are in order. In October 2013, the Let Property Campaign was introduced to encourage landlords to disclose unpaid tax with the promise of reduced penalties. We understand this campaign is set to run until the spring of next year.
The message being sent out to landlords via the mainstream press is that HMRC is compiling an ever-growing list of offenders and will ensure the correct amount of tax will be collected on rental profits and chargeable gains. And, property owners who fail to contact HMRC of their own accord may face criminal investigation, serious charges and harsh penalties.
The first question regularly asked by many landlords is how will HMRC know if I have an undeclared rental income?
HMRC has spent a significant amount of money identifying landlords from letting agent files, the Land Registry, electoral rolls, housing benefit records and council housing allowance returns. All letting agents have been asked to provide a list of landlord clients and the rents collected on their behalf as part of an ongoing data gathering exercise. In fact, lettings agents have had to declare this information on their own tax returns for some years. More information can be found in this useful document put together by independent financial advisors, Zing Money.
If you believe you might have been underpaying tax, whether knowingly or not, it is definitely time to take action. Contact your accountant, take professional advice and then contact HMRC before they contact you. To take part in the Let property Campaign, landlords should call the HMRC on 03000 514479.
