Voluntary disclosure of unpaid tax by landlords has almost halved, with the 2020/21 tax year reporting a drop of 42% compared to the previous year. This is the lowest figure in the last 7 years and has prompted HMRC to target landlords specifically, looking for unpaid tax.
So, why are there fewer landlords disclosing their unpaid tax?
Tax legislation changes impinge on Landlord’s profit
Fewer landlords disclosing errors could be due to several things, especially with the pandemic added to the mix. It’s more likely that there has been a significant number of landlords selling up and exiting the profession though. This is thanks to recent tax legislation changes which have made property rental less profitable.
HMRC launched their ‘Let Property’ campaign in 2013 to encourage landlords to declare their tax avoidance, whether deliberate or accidental. At the time of its launch, HMRC estimated that 1.5 million landlords may have underpaid or failed to pay up to £500 million in tax.
It has since seen limited success in collecting that money and has only collected £184m in the last 8 years. This should not deter landlords from coming forward to declare tax arrears though.
What happens if you don’t declare rental income in the UK?
Landlords can be fined up to 100% of the value of the unpaid tax and can reclaim payments over a 20-year period – they can even face criminal charges. For properties overseas, the penalties can be even greater and as much as 200% of the unpaid tax.
If landlords voluntarily disclose their errors, tax will only be reclaimed from a 6-year period, with smaller fines and a window of 90 days to pay back any owed tax.
By gathering information from bank accounts, tax returns, lettings agents and even holiday lettings websites like Airbnb, HMRC have become more effective at identifying suspected cases of underpaid tax. It’s just not worth the risk – the best course of action is to always admit to any errors, accidental or otherwise.
More regulatory changes are on the horizon
Landlord tax has become an increasingly complex area of legislation, with significant regulatory changes which have left many overwhelmed. The job has become an admin-heavy, time-consuming, and confusing one. This makes it very easy to see how many landlords, whether professional or semi-professional, have miscalculated tax due as changes have been rolled out over recent years.
It’s not just UK rental income that is taxable; if you have overseas property that you receive an income from this must be declared too. HMRC has gained greater visibility in this particular area, so don’t wait to be caught out.
Choose a landlord accountant to help
For full time, professional landlords, using an accountant is a sound business choice. But more and more small landlords are turning to accountants to assist in their tax administration to ensure they are operating legally and tax efficiently.
Concerned that you may have undeclared tax due to rental property income? Contact our team of expert chartered accountants today, who can assist you in your calculations and will help you declare to HMRC.