Lexicon Tax

Landlords and Let Property Campaign

Received a letter from the HMRC Let Property campaign office?

Our founder has over 20 years’ experience working in HMRC as well as having professional tax qualifications. All of our staff have either HMRC or an accountancy background.

HMRC is closing down on landlords who may have rental income not declared to the tax man.

Upon hearing from HMRC’s Let Property Campaign Office, how have you felt? Concerned? You aren’t the only one. When the initial campaign was started, 1.5 million different landlords had underpaid tax according to HMRC.

There are generally two types of letters you might receive from HMRC regarding lettings income. This article discusses the original Let Property Campaign letters which are known as ‘nudge letters’. HMRC has now taken a further step and started opening ‘soft investigations’ into landlords which are more engaged and can be more intrusive than the ‘nudge letters’. Please see our article on ‘Income from letting property’ enquiry letters from HMRC.

 After reading the letter, you may have felt stressed or scared. It could have been due to the fact you were unaware of the profit you could have made – or you were possibly turning a blind eye to it, or you may have thought that no one would find out and HMRC will not come after me. Leading up to the problem, with HMRC being hot on your heels, it could even be that you had no idea where to start from.

Read on to have your queries about the Let Property Campaign answered. Lexicon Tax has a team of tax advisors, many of whom are ex HMRC with decades of experience. Some have even worked on the Let Property Campaign project and where part of the team in HMRC that devised the various procedures and processes currently being followed by HMRC staff. Therefore, we are well versed in HMRC tactics and strategies including the Let Property Campaign off shoots where investigations are opened into landlords who have not come forward so far. Many of our tax advisors are also landlords with a mixed property portfolio as well as experienced in property development.

HMRC letter examples Below:

Frequently Asked Questions

The initial campaign by HMRC targeted landlords that have unclaimed profits from renting their properties out to tenants. This gave landlords an opportunity to bring their tax affairs up to date via an amnesty. After the launch of the campaign in 2013, HMRC have been repeatedly sending numerous letters to various landlords and property investors who HMRC believe have undeclared income. These letters offer the opportunity to report their unclaimed income from tenants, to pay any taxes and for them to benefit from lower penalties.

If you think you have undeclared income from property don’t wait for a letter from HMRC. You can voluntarily make a disclosure to benefit from the amnesty which will also mean low penalties compared to been prompted by HMRC.

Just because you have not received a letter yet does not mean you have ‘gotten away with it’. HMRC continues to receive new data and continues to send out letters. HMRC have also recently changed tact and have started opening investigations into anyone who has not come forward

As the world of technology advances rapidly, HMRC have been slowly gathering a database with information on UK landlords from various sources up and down the country. This information has been collected from other agencies such as the Council, Land Registry, Letting Agents and the DWP. HMRC have invested over £80 million into the ‘Connect’ system. Connect is an advanced computer program with unlimited access to vast amounts of financial and personal information. With the ability to access Land registry databases, mortgage information, the price that an investor paid for a property can be easily identified – it can also connect you to any possible residencies you rent and can notify you where tax is possibly owed. Unfortunately, it could be an aggrieved ex tenant or a former relation who has filed an angry complaint to HMRC about a landlord who is receiving a profit which has not been taxed. It has been known for records on social media to be checked.

Think of it as Big Brother is watching you. The HMRC connect system will know a lot of information about you which is available not just in the public domain, but also information HMRC has access to or has obtained using their legal information powers.

As stated, if you have unclaimed revenue from tenants, it is not the question of if HMRC will contact you, it is a question of when. They can only work to the best of their ability with copious amounts of open cases at one time. So, it is a case of HMRC working through their long list of landlords on their database. With the number of uncontacted landlords being significantly large, we believe it will be quite some time till the Let Property Campaign will end.

Of course you can deal with it yourself if you feel you are comfortable and have the relevant knowledge. The legislation and rules are quite complicated especially if disclosing a number of years. There have been various changes to the tax rules over the years for landlords.

 The rules around what expenses can be claimed for let property can be complex. As part of the disclosure, you must also calculate the correct interest and penalty figure which can be complicated and daunting. The last thing you want to do is get it wrong or make mistakes on your disclosure which could result in a lengthy and expensive investigation by HMRC with a ‘fine hair comb’.

You can certainly make the disclosure for the let property campaign yourself. However, please be aware that at the end of the disclosure process you will be required to sign a legal declaration. If your disclosure contains errors or you omit any income this could trigger not only a tax investigation, but potentially criminal prosecution.

Lexicon Tax have a team of tax advisors who have extensive experience in dealing with HMRC. This allows us to ensure you pay the minimal tax due using all legal allowances and reliefs, and keep any penalties to a minimum. This can also ensure that the disclosure will satisfy any HMRC scrutiny.

This can be a complex, stressful as well as a confusing and time-consuming task. Lexicon Tax can assist you to get the best possible outcome. Contact us for a free discrete, confidential and most importantly non judgmental consultation. You can email us at info@lexicontax.com or call us on 0114 4000192.

Our advice is don’t do it. Burying your head in the sand will not make the problem go away. It will only make the problem worse.

At the same time don’t be tempted to tell HMRC only half a story or claim you did not have any rental income without first consulting a tax specialist. HMRC have not written to you for no reason and the letter should not be treated as junk mail. As mentioned earlier, HMRC has a complex computer system which holds lots of information on you. By ignoring the letter HMRC are likely to open a tax investigation which will result in higher penalties. The penalties can be up to 100% of the tax owing and even up to 200% of any tax owing on offshore income. You could also open yourself up to threats of criminal prosecution.

Responding to HMRC within the requested time scale, you can put things right without worrying or stressing too much.

When you receive a letter from HMRC, you normally have 30 days to respond. You will have to confirm whether you will be making a disclosure or not. If you do need to make a disclosure HMRC will ask you to do this. You will have 90 days to submit your disclosure after HMRC ask you to.

Don’t wait to receive a letter. You should notify HMRC to make a disclosure before they come to you. If you’ve got undeclared rental profits and HMRC writes to you, the disclosure will be classed as ‘prompted’. But if you notify HMRC before they write to you the disclosure will be classified as ‘unprompted’.

You might be thinking what difference does that make? Put simply if your disclosure is classed as prompted, then you will be charged a higher penalty. At the end of your disclosure, you will be required to self-assess the penalty level in line with HMRC’s set guidance. Depending on the reason why you failed to declare the rental income in the first place, the penalty can be up to 100% of the tax due or up to 200% if it is offshore rental income.

If you deliberately attempted to evade your taxes, then of course you will be looking at closer to the higher end of that range. However, making a disclosure will still mean that you pay a lower penalty compared to if HMRC would open up a investigation into you. Making a disclosure, particularly a ‘unprompted’ disclosure can also reduce the chances of you being criminally investigated.

If this is genuinely the case, you may not need to make a disclosure under the Let Property Campaign. However, you should still respond to HMRC’s letter.

If you have made genuine losses, then it may be still worth getting in touch with Lexicon Tax to establish your losses. This is because you would be able to carry forward these losses and offset against future rental profits until the losses are utilised. This can save you thousands of pounds in tax on your future rental profits.

Please bear in mind that what you may think is a loss may not necessarily be a loss for tax purposes. There have been various changed to tax rules over the years. For example, mortgage interest and finance costs can no longer be claimed as an expense against your rental income. They can only be claimed as basic rate tax relief.

 You also need to bear in mind that you can only claim the interest element of a mortgage, and not the capital repayment element. Another key area to consider are repairs. What you might consider as repairs, for tax purposes these may be classes as capital improvements and not allowed as a deduction against your rental income. Lexicon Tax can assist you in calculating your rental profits and losses. Contact us today to arrange a free discreet and confidential consultation.

In a rental property business, there are lots of different types of expenses you can claim. Depending on the type of rental property or business (residential buy to let, HMO, furnished holiday letting etc), there are different expenses which are allowed.

It is quite common that once all the difference allowable expenses are taken into account, many landlords will discover they don’t need to pay as much tax as they might have feared.

Please see our separate guide to provide a basic overview of the sort of expenses landlords can claim against their rental income.

The short answer is, no. However, submitting a disclosure under the Let Property Campaign, which is a full and accurate honest disclosure, then you are very unlikely to be pursued by HMRC for criminal prosecution.

This is not unusual. We get asked this quite a lot, particularly in cases where landlords need to go back many years. Ideally, you would have original documents and invoices to provide us to arrive at the rental accounts. However, we know this is not always possible and HMRC fully appreciate this.

Where you have gaps, you may be able to request documents or statements from letting agents, banks, and suppliers. If you have already done this and still have gaps, don’t panic. HMRC guidance allows you to use a best estimate where there are gaps. Please note however that HMRC may ask for explanations to support or substantiate any estimates.

If you have been a bit lax with your record keeping in the past, now is the best time to get your books in order going forward. There are changes in the pipeline which will require landlords to keep digital records under the Making Tax Digital (MTD) regime HMRC is expanding to all its customer base.

After you have notified HMRC about making a disclosure under the Let Property Campaign, HMRC will write you with a disclosure reference if they accept your notification. You have 90 days from the date of this letter to make a disclosure and pay anything due. You should make the payment at the same time as making your disclosure. Please don’t wait for HMRC to agree your disclosure before making the payment. This is because interest has been calculated based on the date of your disclosure and HMRC may take several weeks and sometimes months to agree your disclosure.

If you do not pay what is due within the 90 days, or reach an agreement for time to pay, this may impact HMRC’s decision to accept or decline your disclosure.

Don’t worry if you cannot pay the whole amount at the same time as making the disclosure. We will normally liaise with HMRC and discuss your circumstances to try and agree a payment plan.

I am stuck, can you help me?

The HMRC let campaign can be a bit of a daunting and complicated process. Most landlords therefore choose to engage a tax specialist. Lexicon Tax have vast experience in this area particularly as our team consists of ex HMRC staff who worked on the Let Property Campaign project during their time at HMRC, as well as landlords and property developers outside of their roles at Lexicon Tax.

We will take care of everything for you. You don’t even need to speak to HMRC as we will do this for you. We will deal with the entire process from notifying HMRC all the way to reaching a settlement and time to pay plan if necessary.

We can also help to ensure that you are compliant with your tax affairs going forward. Our accountancy team can assist with future accounts preparation and tax filing obligations.