Receiving Rental Income? Get Your Tax Affairs Up to Date

Since the autumn of 2013 HMRC has been running a campaign concerning let property.  This campaign offers individual landlords, and those renting out their own homes, the chance to disclose any taxable income to HMRC that they have not previously disclosed and get their tax affairs up to date. The tax authorities have recognised that some people might have been unaware that their rental property income was actually taxable so are allowing the tax to be paid with no, or low, penalties – the exact amount is dependent on individual circumstances.

Tax Affairs for UK Landlords

So just how do you know if your let property income is taxable?

Here are some common examples of situations where people have not realised some of their income from let property was taxable:

Renting Out a Previous Home

You own your own apartment but moved to a different area for a new job a couple of years ago and rent out your previous home. You informed your mortgage provider and they were happy for you to let the property but the mortgage is a repayment mortgage so not all of the mortgage costs are tax deductible. Only mortgage interest is a tax deductible expense so you may have failed to pay tax on the repayment part (assuming the rent plus expenses is higher than your mortgage payments)

Changing Personal Relationships

You own a property jointly with your spouse but decide to separate and you both purchase separate homes and rent out the previous marital home. As a married couple or civil partners the rental income is divided equally between you so you are both potentially liable for tax on that income. If you subsequently divorce but retain joint ownership of the let property then that could affect how you want to arrange your individual tax liability especially if both parties are not in the same income bracket.

Changes in your Employment Income

You have a property portfolio and have been paying tax on your let property income for some years but last year you were promoted at work and are now a higher rate tax payer. The amount of tax you are liable for from the property portfolio will also have increased.

You Buy a Flat for your Student Child

You bought a flat for your child to live in while they were at university and they did not pay you any rent. After your child finished their degree course they arranged to rent out the flat to other students at the university who have been paying you rent so you do now have a rental income, which is potentially liable for tax.

You Inherit a House from Your Parents

You inherited a house from your parents 4 years ago and decided to let it out until the housing market picked up. There was no mortgage on the house so all of the rental income (less expenses) should be declared to HMRC.

You own a holiday home abroad

You are a UK resident but have a holiday home in Spain that you rent out for several months of the year – this income may be taxable in the UK.

What tax affairs are not covered by the Let Property Campaign?

If you let out commercial properties such as a warehouse or a retail unit then your income does not fall under this particular campaign.

Neither does rental income earned by companies or trusts.

If you are an individual landlord letting out residential property but are already the sunject of an HMRC investigation then you cannot take advantage of the lenient terms offered by the Let Property Campaign.

What is the best time to make a disclosure to HMRC?

If you think you may have failed to declare income on let property then now is the time to clarify your situation. There is currently no deadline for disclosure set by HMRC (although the campaign is expected to last at least until June 2015) but it is likely you could face larger penalties if you do not voluntarily disclose the income as soon as possible. While the campaign is running HMRC will be actively targeting landlords.

The process for disclosure under the Let Property campaign is quite complex so always seek professional advice and help with the calculations and completing the form accurately especially if you have a number of let properties or have been letting a property for a number of years without declaring the income. Attempting to make a disclosure yourself or use an unqualified or inexperienced accountant will inevitably end up costing you more.

Tuchbands Accountants are professional tax advisers experienced in the area of Let Property so contact us for advice.