Have you received a letter from HMRC Let Property Campaign?
How do you feel now you have received a letter from HMRC’s Let Property Campaign office? Worried?
How do you feel now you have received a letter from HMRC’s Let Property Campaign office? Worried? You are not alone. In fact, when the campaign launched, HMRC estimated that some 1.5 million landlords had underpaid tax.
On viewing the letter, you may well experience feelings of fear, stress and confusion. Maybe you didn’t realise you were making a profit? Maybe you were burying your head in the sand? Maybe you just thought no one would care? Maybe you kept putting it off, and now the problem has caught up with you? Maybe you do not even know where to start?
Well read on, and we will answer the top 10 most frequently asked questions regarding the HMRC Let Property Campaign.
FAQ 1. What exactly is the HMRC Let Property Campaign (LPC)?
The HMRC Let Property Campaign is a current initiative targeting landlords with undeclared rental profits, and is designed to give those a chance to bring their tax affairs up to date. Since the campaign launched in September 2013, HMRC have been periodically sending large batches of letters to unsuspecting landlords and property investors. These letters offer landlords an opportunity to come forward and report undeclared rental income, pay any backdated tax, and benefit from more favourable penalties.
If you have not received a letter as yet, but you know that backdated information needs to be reported, you can still register voluntarily and benefit from more favourable penalties. In fact, it is much better to come forward to HMRC, before they come to you. Remember, it is only a matter of time!
FAQ 2. How do HMRC know I have rental income?
With advances in technology and greater information sharing, HMRC have been building a detailed database on UK landlords for many years. HMRC have gathered this information from various sources such as letting agents, Land Registry, council records and the DWP. HMRC have invested some £80 million into their so-called “Connect” system, a powerful computer program with access to masses of personal and financial information. By accessing Land Registry databases, Landlord Registries and mortgage information, “Connect” can identify the price you paid for a property, link you to any properties you rent and flag areas where tax is potentially owed. Of course, it could be a disgruntled ex-tenant or angry former spouse who has filed an anonymous complaint with HMRC about somebody they believe to be receiving untaxed rental income. And it has been known for social media records to be trawled through.
As we mentioned previously, if you have undeclared rental profits, it is not a case of if HMRC will contact you, it is a case of when. They can only cope with so many open cases at one point, so it is merely a case of HMRC working their way through their full list of landlords on the “hit list.” With many more landlords still due to be contacted, there is still a long time until the Let Property Campaign ceases.
FAQ 3. Do I need a property tax advisor? Can I deal with the disclosure myself?
You can certainly deal with it yourself if you are comfortable. However, the rules are complex, and it is important that you understand fully the various costs that can or cannot be claimed, along with calculating the correct penalties and interest. The last thing you want to do is make any serious mistakes, and open yourself up to a full blown tax investigation.
While nothing stops you completing your own LPC Disclosure, you should be aware that you will, at the end of the process, be signing a legal declaration. In instructing a specialist property tax advisor, like RITA4Rent, you benefit from their significant experience in dealing with HMRC, maximising your expenses and mitigating penalties. At the same time, we can ensure that the disclosure will stand up to full HMRC scrutiny. This is also a complex, stressful and often confusing experience, which can be extraordinarily time-consuming. At my firm, RITA4Rent, we deal with many, many LPC cases, and given our knowledge of this complicated area of tax and experience in dealing with HMRC, we can pretty much guarantee our clients the best outcome available.
If you still choose to go it alone, there are guides and calculators that can be found on HMRC’s website. Not only can these be quite complex, but they also aren't likely to offer any tax saving tips and advice either.
FAQ 4. What will happen if I just ignore the letter?
DO NOT IGNORE THE LETTER.Well that’s the short answer.
So how about the longer answer. Whatever you do, please do not ignore the letter. Similarly, do not be tempted to write back claiming no knowledge of receiving rent. You have not received the letter on the off-chance that you might have undeclared rental income; it is not speculative. HMRC have information from their sources, and they are informing you of their knowledge. As we have seen here at RITA4Rent, ignoring a letter will result in a full-blown tax investigation, and there can be threats of criminal prosecution and higher penalties, as much as 100% of the tax owing, or even 200% for offshore income.
Nevertheless, if you respond to this letter, in a timely manner, you can put things right without fear or worry.
It is important to note the date of the letter. You have 30 days from this date to inform HMRC that you intend to make a disclosure or confirm whether no disclosure is required, such as if your tax affairs are in fact up to date, or if you have made losses in the past. Once you have informed HMRC that a disclosure is required, they will confirm this in writing. Again, the date of this letter is important, as you will have 90 days from this date in which to submit your disclosure.
FAQ 5. My co-owning spouse / mother / brother has received a letter, but I have not – should I come forward?
Yes. If you have undeclared rental profits, and you have not received a letter, you should come forward before HMRC comes to you by way of their LPC letter. If HMRC write to you, the disclosure is classed as prompted, but if you come forward first, the disclosure becomes unprompted. Therefore, the percentage of unpaid tax you pay as a penalty falls to a much smaller percentage.
Towards the end of your calculations, you are invited to tell HMRC how much of a penalty you believe should be paid. This penalty is calculated depending on the reason why you failed to declare the property income in the first place. Of course, the penalty will be higher if you deliberately attempted to avoid disclosing your rental income, but it will still be lower than if HMRC had instead launched an investigation.
FAQ 6. I am making a loss, but I received a letter. What shall I do?
First of all, are you sure you have made a loss? Are you sure you have only claimed the mortgage interest for the last few years, and not the capital repayment element? Are you sure the repairs can be treated as such, and would not be deemed as capital improvements? These are the types of questions you will need to answer to make sure you definitely have made a loss.
If you have definitely made a loss, you will not need to register under the LPC, however, you must still respond to the letter.
It is worth pointing out that there is a positive aspect to making a loss. Perhaps in the early years, your mortgage rate was poor and there were a lot of repair costs. These losses can be rolled forward, until fully used up, against future rental profits. So, if this is you, get yourself registered for Self Assessment, and get those losses registered with HMRC!
FAQ 7. I started letting my property years ago, and I have many gaps in my records. What shall I do?
This is a common question, and one that HMRC fully appreciate, given in some cases landlords need to go back many years. Of course, in an ideal world, you should be working from, or providing your tax advisor with, original document/invoices. In the absence of this, you may need to order older bank statements and/or contact suppliers. If you have tried everything, and still cannot fill in the gaps, then HMRC guidance states that you should estimate as best you can. This, however, is a last resort, as it could be challenged by HMRC.
As an aside, it goes without saying, that if you have been slack in the past, draw a line under things, and keep impeccable records moving forward.
FAQ 8. What expenses can I claim against my rental income?
There are many types of expenses which may be claimed, and as such, once these are all factored in, many landlords find that their tax liability is not as bad as they initially feared. There is no single definitive list of expenses, but please see our separate feature which explores typical costs in depth.
FAQ 9. When do I have to pay the calculated tax and penalties owed?
The payment is due on the same date the disclosure form is submitted. This is because the interest calculated is based on the date on which you make payment. You should not withhold payment and wait for HMRC’s agreement to the disclosure, as this can take weeks and sometimes months.
If you are unable to make payment in full, then you should speak to the LPC helpline before the disclosure is submitted. They can discuss the options with you, and on reviewing your circumstances, they will decide whether they will allow you to spread the cost over several months. It is dealt with on a case by case basis, but in cases of genuine hardship, HMRC are quite amenable.
FAQ 10. Am I immune from prosecution now I have submitted my disclosure?
Not necessarily. However, if you have submitted a fully accurate and honest disclosure, then the chances are small.
We hope our HMRC Let Property Campaign FAQs were a helpful read.
To summarise, once you receive a letter from the Let Property Campaign office, you really do only have three options:
- declare your unpaid rental income and face the penalties
- ignore it (do not do this!) and HMRC investigate you and there will be even more severe penalties
- advise HMRC that no disclosure is required, e.g if you have made a loss
The HMRC Let Property Campaign can be a minefield, and most landlords therefore need assistance in navigating their way through the lengthy process. Therefore, the best option is to engage with a property tax specialist, such as RITA4Rent, who will take care of liaising with HMRC, dealing with the paperwork and obtaining the best possible outcome for you. Once everything is complete, you can then rest easy, and take the necessary steps to ensure you are compliant moving forward, and never get in trouble again.
This Guide was produced by Michael Wright, Landlord Tax Expert at Rita4Rent, who are specialist landlord tax advisors, and the sole recommended tax advisors of the Residential Landlords Association. Michael now writes for Listentotaxman.com on matters relating to property and landlord tax. Rita4Rent are very happy to speak with Listentotaxman visitors to discuss any tax questions they might have – just visit the Rita4Rent website for contact details.