HMRC are actively looking for taxpayers they suspect haven’t paid tax on their letting income. Due to the popularity of online platforms such as Airbnb, Booking.com, etc, more and more people are taking advantage of the growing trend for short-term breaks and becoming landlords through property investment or renting out a room in their own home. In fact, it’s not uncommon, depending on location, for people to sporadically rent out their entire home during seasonal events such as Wimbledon or Glastonbury. For those that fail to declare such income, there is a high risk that an unexpected “nudge” letter will be on its way from HMRC.
The letter typically states that HMRC has information suggesting the recipient has untaxed rental income and requests a response within 30 days. The letter may include a certificate of tax position inviting the taxpayer to certify that their affairs are correct and up-to-date, or that they wish to “come clean” and settle all outstanding taxes.
We do not recommend signing this certificate as it is not a legal requirement to do so, and careful consideration should always be given before any formal response is provided to HMRC. It’s also important to note that any disclosure to HMRC should cover all applicable taxes and only for past years that HMRC has the legal power to assess. If you receive this type of letter, we recommend consulting a qualified and experienced tax advisor as soon as possible.
HMRC possesses a wide range of investigation and information gathering tools. They have established a dedicated taskforce to seek out those receiving untaxed letting income in the UK or abroad. HMRC have access to a powerful and sophisticated database called CONNECT, which gathers and collates information from a wide variety of sources, including mandatory submissions by online rental websites, Land Registry, Estate Agents and international exchanges of information such as the Common Reporting Standard (CRS). HMRC’s investigative capabilities are extensive, and it would be very unwise to think that your exotic hideaway is invisible to HMRC’s gaze!
Recent initiatives such as the controversial Register of Overseas Entities (ROE) have sharpened HMRC’s knowledge toolkit. The register requires information about the beneficial owners of UK property (owned by an offshore company or trust) to be disclosed to Companies House. In addition, the recent launch of a landlord database, as outlined in the Renters Reform Bill, further enhances HMRC’s investigation capabilities. More information on the Register of Overseas Entities and related penalties (civil and criminal) can be seen here.
It won’t be too long before HMRC have near real-time information on anyone receiving rental income, here or abroad. If a disclosure is necessary, it is always best to make a voluntary approach to HMRC before they make first contact. Managing a voluntary disclosure to HMRC will reduce any subsequent tax penalties and, if handled correctly, invariably reduce the stress and anxiety caused by an unwanted tax enquiry. Importantly, an experienced tax advisor will always ensure you receive deductions for qualifying expenditure and rent-a-room relief where appropriate.
We, at Lubbock Fine, are specialists in managing all types of tax enquiries and disclosures to HMRC. We have many years of experience advising property owners and landlords about the most tax-efficient way to manage their property portfolios. If you would like to have a confidential chat regarding a tax enquiry, please contact our Tax Investigations Director, Graham Caddock (grahamcaddock@lubbockfine.co.uk).
