If you are a landlord and do not declare your income from let property to HMRC, from our experience, there is a strong possibility that you will receive a prompted letter from HMRC at some stage. The headline will read:
‘We believe that you own property, and that you may receive, or have previously received, income from letting property. Our records do not show that you have told us about this income.’
If you receive one of these letters, you will be given 30 days to contact HMRC and provide the information requested. Before you respond, we strongly recommend you contact Lexicon Tax for professional advice.
HMRC is conducting a rigorous campaign in targeting landlords who may not be declaring their rental income. HMRC have many tools at its disposal and can easily identify anyone who owns more than one property and is likely to be receiving rental income. They will not only have access to land registry data but council tax records, housing benefit data as well as reports from letting agents.
This reminds us of one of our very first clients.
We received a call from a gentleman who had received an investigation letter from HMRC. He was very stressed and didn’t know what to do and which way to turn. He was totally lost and in despair. He had previously wanted to make a voluntary disclosure and had read up about it. However, he found the Let Property Campaign disclosure process very daunting and kept putting it off. Months turned into years without him making a voluntary disclosure.
Eventually HMRC caught up with him and he received one of these letters. This meant he went from trying to be proactive in resolving his tax affairs to being reactive with a deadline looming of only 30 days to contact HMRC. He had a total of 12 properties with undeclared income. Some of the properties had been rented out for 15 years. There was a huge challenge ahead to collate all information required. HMRC initially proposed assessments totalling over £500,000, plus interest and penalties.
Having Lexicon Tax on his side, we were able to draw up rental accounts stretching back 15 years and provide these to HMRC along with the other information requested. We were able to demonstrate that the client had been making huge losses in earlier years which would cancel out any profits in later years.
The net result was the client’s investigation was closed with no tax or penalties to pay. Our review also established he was due a tax refund of almost £11,000 which came as a nice surprise to our client. We also identified the client was entitled to unutilised finance costs of £51,000 which could be offset against future years’ rental profits.
Lexicon Tax are experts in property tax and dealing with let property investigations. Our founder, Mohammed Nazam, worked in HMRC for 20 years prior to starting his own practice. During his time at HMRC, he was actively involved in developing and implementing various HMRC strategies around landlords and property tax campaigns. Therefore, as well as having expertise in property tax to ensure you don’t pay more than you should, we also have first hand knowledge of the let property campaign to minimise the stress and time involved in an investigation.
We can take away the stress of dealing with HMRC.
Your Next steps
If you have received such a letter, it is imperative that you contact our specialist Tax Consultant Team at Lexicon before engaging with HMRC so that we can best advise you how to proceed and ensure you are positioned to get the best outcome. We are able to handle everything from the initial call to HMRC, taking the stress and pressure away from you, and then take the necessary steps forward in a confident and structured manner to a timely resolution with expert negotiation on any tax, interest and penalties due.
At Lexicon Tax, with our expertise and experience, we advise that the best approach is to make a voluntary disclosure of any undeclared Property Tax before being prompted by HMRC to avoid potentially large penalties and interest. Again, we are able to deal with the entire process, from disclosure to resolution, with HMRC, taking the stress away from you.
After dealing with our client’s investigation, he is now an on-going client, taking a proactive approach towards his tax obligations to avoid any stress in the future. We have also advised our client to ensure his affairs are structured in a tax efficient manner through a company structure. Able to provide wrap around tax planning advice beyond the investigation to ensure you are tax efficient.
