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Do you owe tax on rental income?

August 2, 2019 - Read time 4 mins

You might, even if you think you don’t.

HMRC announced earlier this month that they are cracking down on private landlords who haven’t paid tax on rental income, launching the Let Property Campaign.

Are you one of the landlords they’re after? You might be, even if you don’t realise it. Many landlords don’t declare because they don’t realise they have to, or because they don’t believe they owe any tax. But every landlord who makes a profit, however small, must fill out a self-assessment form each year with details of all their rental income.

You need to do this even if:

  • Your main income is PAYE and you don’t usually fill out a tax return. 
  • You’re an accidental landlord rather than buy-to-let and don’t consider your rental property to be a business.
  • Your income is below the income tax threshold. 
  • You’re retired.
  • You only let out one property. 
  • You have a holiday let. 
  • You rent out a room in your own house, if you make more than £7,500 a year from it. 
  • You live abroad. 

If in doubt, fill out the form and declare. You may not owe any tax, or only a small amount, once you’ve accounted for expenses. But HMRC can’t tell the difference between someone who is deliberately tax-dodging and someone who has made an honest mistake. They’re coming after everyone equally.

What are the penalties for not declaring rental income?

The penalties for not declaring (whether deliberately or by mistake) are potentially huge. If you don’t declare voluntarily, HMRC could charge you up to 200% of your undeclared income. 

But it’s not as terrifying as it seems. You can contact HMRC and be honest with them any time. From that point onwards, you have 90 days to calculate the landlord tax you owe and pay it. You don’t need to be worried about being hit with an immediate bill that you can’t pay. 

Why is this happening now?

HMRC have realised over recent years that many landlords don’t declare their rental income. They’ve run several campaigns to encourage landlords to declare and pay back-taxes owed. 

This resulted in £21 million extra revenue in 2017-18, and £42 million in 2018-19. HMRC believe that, with such sharp, fast increases after previous campaigns, that there is probably much more to be collected. 

What should you do if you think you owe HMRC money?

We strongly advise landlords to take advantage of the amnesty offered by HMRC. If they decide to withdraw their offer, you could be hit with huge charges. If you’re worried you can’t afford the tax you think you owe, imagine being hit with double. 

It’s also possible that someone you know might report you if they suspect you haven’t paid enough tax. HMRC have an online system to make this easy, and they encourage people to report suspicions. 

The other possibility is that you get hit with a tax investigation. No-one really knows for sure how they choose who to target. There are likely to be some random investigations, but it’s also thought that HMRC look out for triggers. These can include not having an accountant, or having a business that doesn’t look as profitable as HMRC would expect it to be. That may apply to you if you’ve declared part of your income, but not all of it. 

Undeclared income to-do list

If you’re now sitting in a cold sweat, staring at a spreadsheet and trying to work out whether you owe any money, stop panicking. 

Dealing with HMRC is never fun, but remember this: when they launch an amnesty, they mean it. They won’t make things difficult for you for paying late. They just want their money, however and whenever it comes in. 

Here’s what to do next:

  • Read this page on the HMRC website to find out more about the campaign.
  • Find all the information you have on rental income, whether that’s a spreadsheet, a pile of receipts or your online banking statements. 
  • Use this calculator to find out how much you might owe.
  • If you don’t have an accountant, consider hiring one to handle this for you, especially if your finances are complicated (if you have an offset mortgage, for example). It may cost less than you think. And they won’t judge you: they help people who’ve made financial mistakes every day.
  • Fill out the digital disclosure form, or ask your accountant to do it for you. 

Once the form has been filled in, HMRC will contact you to confirm what you owe, and you’ll have 90 days to pay it. 

Found this blog useful? Follow us on Twitter @lyvlylandlords for more real-time finance and advice for property owners.

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