Since October 2013, HM Revenue & Customs (HMRC) has stepped up its scrutiny of landlords by sending out letters to buy-to-let owners which it suspects are bending the rules to avoid paying the right amount of landlord tax. The letters, which have been sent to nearly 40,000 landlords across the UK, detail the new 'Let Property' campaign initiated by the HMRC to warn proprietors to clear up any financial issues before action is taken.
The 'Let Property' campaign gives landlords the opportunity to bring their tax affairs up to date with the HMRC before legal action is taken. The campaign is aimed at individual landlords who are renting out residential property, to provide them with the best possible terms to pay the tax they owe.
If you're one of the 40,000 landlords to have received a letter, don't panic, think of it as a friendly reminder! If you owe tax from your letting income, you have to let the HMRC know about the revenue you haven't declared by making a voluntary disclosure. To do this, you need to tell the HMRC that you wish to take advantage of their terms by either calling the Let Property helpline or by filling out a notification form. Once this is completed, you'll have three months to then calculate and pay the amount of tax you owe.
To help landlords see if they're eligible to pay back tax under the 'Let Property' regulations, HMRC have issued some useful guidance.
You will be eligible if you fit one or all of the following boxes:
The HMRC are keen to stress that the 'Let Property' campaign is aimed at individual residential landlords, meaning you can't use the scheme to declare undisclosed income if you're a trust, company or a person renting out a commercial property. An official HMRC online questionnaire is also available to provide clarity and to advise you on the next steps.
If you have undeclared income and don't make a voluntary disclosure, you could face stringent penalties and even criminal prosecution, so it really does pay to pay!
According to the HMRC, tens of thousands of landlords are paying little to no tax on rental income and capital gains made on second properties. As a result, HMRC has employed a significant number of new staff to find the estimated £500m of missing tax money each year. The HMRC has revealed that only 500,000 taxpayers are registered with them as owning a second property, but the actual number of landlords may be much higher, at 1.5 million.
The 'Let Property' campaign has had an impact to a certain extent, but as the HMRC has refused to disclose how many buy-to-let owners have come forward and voluntarily paid their tax, we cannot know how successful the campaign has been. As far as solid evidence goes, the HMRC reported that the website offering advice and guidance has received hundreds of thousands of visits. We can only speculate, but the HMRC has previously run successful campaigns such as the 'My Tax Return Catch Up', and therefore we suspect many landlords have come forward and paid the tax they owe. One thing is for certain, it will be very interesting to find out if the HMRC manages to recoup the missing £500m of missing tax money.
If you're a landlord who owes tax, the 'Let Property' campaign is the perfect chance to get your finances in order. We understand that landlords are only human and accidental landlords in particular may not fully understand the rules around paying the correct level of tax, meaning you may have underpaid through a mistake rather than a mischievous deed. If you think you may have misunderstood the tax rules, please contact the HMRC immediately as the penalties will be much less severe. Here at CPS Homes, we can help make renting out a property easy thanks to our range of landlord services. If you're interested in renting out a property or would like some advice on property taxes, please contact our friendly team today!