HMRC clamping down on landlords who don’t declare all their income

Landlords with undisclosed income are increasingly in the crosshairs of the HM Revenue & Customs – and could be forced to pay fines, taxes and interest.

In order to avoid being caught out Donna McCreadie, a buy-to-let specialist at Perrys Chartered Accountants, recommended for landlords to ensure their records are up to date.

Penalties for undisclosed income can be hefty, ranging from 10% to 100% of the rental income.

Meanwhile landlords who receive threatening letters from the HMRC will be expected to pay more than if they declared what they earn voluntarily.

Perrys urged landlords to ensure income and expenditure records are up to date, and told investors to make sure they declare rental income to the HMRC on time.

The accountancy firm said ‘accidental landlords’ in particular could be caught out, given that they, in many cases, never intended to let a property out, and therefore don’t approach it like an experienced professional landlord would.

The accountancy firm issued the following guidance:

How does HMRC know if you have undeclared rental income?

HMRC has numerous ways to find individuals who haven’t declared rental income, and their resources for investigating are extensive. These include gathering information from HM Land Registry and Stamp Duty tax returns, reviewing reports from lettings agents and tenancy deposit scheme providers, carrying out online searches, making door-to-door enquiries, receiving reports from members of the public and collecting information from other government departments, such as the electoral register. The law allows HMRC to go back up to 20 years and, in some cases, HMRC may carry out a criminal investigation.

What happens if I don’t declare undisclosed rental income?

Regardless of your reasons and no matter how overwhelming it might seem, it is important to remember that not declaring rental income is a criminal offence - the longer you leave it, the bigger the tax bill and penalty you will need to pay. The good news is, there is professional support available to help you navigate the system and get your tax affairs in order.

Can undisclosed rental income affect my chances of getting a mortgage?

Yes. Any mortgage application you make will use your income to calculate how much money you can borrow as well as the interest you will pay. If you have not declared your rental income, then this amount cannot be accounted for as part of the application process as you will be unable to prove you are receiving it. This means you might not be able to borrow the amount you want and you could end up with less favourable terms, such as paying a higher percentage rate.

More importantly, you might also find that you are unable to refinance your rental property at the end of a fixed-term rate. This is because lenders will require copies of your tax returns, which show what rental income has been declared.

What is the best way to declare undisclosed rental income?

Do not wait until you receive a letter of demand from HMRC. Instead, you should speak to a professional, such as a specialist buy-to-let accountant like Perrys, who will be able to guide you through the process, calculate the tax you owe and ensure any mitigating factors are correctly applied.

What should I do if I receive a letter from HMRC about undisclosed rental income?

If you have already received a letter from HMRC requesting payment for undeclared rental income and you haven’t yet come forward, then it is important you do not ignore it. Instead, you should contact a professional as soon as possible to discuss your options and get assistance with correctly calculating the amount you owe to avoid mounting bills and substantial penalties.

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