As part of its initiative to clamp down on rogue landlords, it’s estimated that HMRC has recently sent out over 600 letters to landlords whom it believes has undeclared rental income or gains from residential property.
This type of nudge letter is said to give the landlord in question 30 days to review and correct their tax position, although there is no obligation to respond.
HMRC’s new means of identifying potentially undeclared income
HMRC uses many methods to identify landlords that haven’t declared the right amount of income, such as through the Land Registry, completing online searches or viewing letting agents’ reports, but its newest means is by using data submitted to a tenancy deposit scheme (which all landlords letting under assured shorthold tenancies are required to use). From this data, HMRC is able to work out a rough estimate of how much rental income a landlord has received and therefore compare this with the income records submitted.
In addition, HMRC is also contacting landlords whom it suspects has incorrectly declared business asset roll-over relief or hasn’t paid Capital Gains Tax (CGT) on any property that has been disposed.
Not necessarily a cause for concern
It’s worth noting that HMRC’s calculations using data from a tenancy deposit scheme is an approximate estimate based on the assumption that the landlord has taken the maximum deposit. It also doesn’t consider situations where landlords have reduced the rent or have had periods where their property has been vacant, so it’s likely that there will be many nudge letters that don’t require any action.
What to do if you receive a letter
Although HMRC has stated that there is no obligation to respond, we don’t recommend that you ignore it – even if you believe that the income you have declared is correct. Simply ignoring the letter runs the risk of HMRC opening up an investigation further down the line, which could result in hefty penalties if any issues are identified.
If you receive a letter (or even if you haven’t and you believe you may have underpaid tax), we strongly recommend that you get in touch with an accountant who will thoroughly review your tax position to ensure that your income is correctly calculated. But remember – you only have 30 days from receiving your letter to complete your certificate of tax position, so it’s important you get in touch straight away! We offer landlord accounting and advice so feel free to get in-touch.