Since launching the Let Property Campaign in Autumn 2013, HMRC have targeted over 40,000 landlords with previously undeclared rental income, and it is reported that they have raised over £7.9 million in additional tax from voluntary and prompted disclosures so far. So how exactly do they find out about undeclared rental income?
HMRC has invested over £80 million into developing their Connect system, a powerful computer programme which has access to a range of databases containing personal and financial information. It can match these records to tax returns and identify discrepancies in seconds. Connect has access to more than 30 sources of data, including the Land Registry, and its power is increasing as it is set to access international records from 2017 onwards.
By accessing Land Registry databases and mortgage information, Connect can identify the price you paid for a property, link you to any properties you own and flag areas where tax is potentially owed. This could trigger an investigation, or a letter under the current Let Property Campaign.
HMRC Campaigns are aimed at groups of taxpayers where they suspect a higher risk of tax error. They offer generous settlement terms for people with undisclosed income or tax discrepancies who come forward voluntarily. The Let Property campaign has been running since 2013 and offers landlords the opportunity to put their affairs in order under a more lenient penalty regime.
As part of the campaign, they are also writing to landlords where they suspect an undisclosed tax liability. If you receive a letter you have 30 days to respond, and this is classed as a prompted disclosure. Penalties for a prompted disclosure can be up to 100% of the unpaid tax liabilities and up to 200% for offshore related income. In extreme cases, HMRC can also conduct an investigation and this may result in criminal prosecution.
Another tactic the taxman uses to identify undeclared rental income is the power to obtain information from third parties. HMRC have been writing to estate and letting agents to access their records – giving them the names and contact details of registered landlords.
The Let Property Campaign does not have a current end date, but if you are a landlord with undeclared rental income or errors in your tax affairs you are strongly encouraged to come forward and take advantage of the settlement terms on offer sooner rather than later. It’s also important to note that this does not mean that HMRC will cease enquiring into landlords’ tax affairs when the campaign is over.
Even if your rental property runs at a loss, you should be declaring this on your tax return. Property taxation is an increasingly complex area and even more changes were recently announced in the Summer Budget. HMRC are becoming more powerful, and with more resources at their disposal they are able to easily identify and target landlords with undeclared income or losses.
A further £750 million has recently been invested into HMRC and they have doubled their “Affluent Unit” – a taskforce dedicated to investigating taxpayers earning over £150,000 who qualify for the 45% tax band. They are particularly interested with those owning property abroad, along with significant property holdings in the UK.
To make sure your tax affairs are in order and you make the most of the allowances available, seek the advice of an accountant. As well as keeping you compliant, they will be able to help ensure you’re in the most tax efficient position possible so you can keep more of the money you earn from your rental property.
At Ormerod Rutter we have a specialist property team who can handle all your tax affairs for you, and help you make a declaration through the Let Property Campaign if required. Contact us today to arrange a free initial consultation.