As a property landlord, you would have been lucky to avoid reading a news feature last year involving HM Revenue and Customs and their various quests targeting landlords. Relentlessly turning up like a bad penny, the message is clear: “Be compliant. Pay your taxes. Pay on time.”
Michael Wright, director of property taxation specialists RITA4 Rent Limited explains the rationale and detail behind the new HM Revenue and Customs “Let Property” campaign.
Back in the Autumn of 2013, the HMRC “Let Property” campaign was launched to encourage landlords to come forward and declare past rental profits, benefitting from more favourable terms and penalty rates.
Big numbers were cited….up to an estimated 1.5 million landlords. . .£550 million in unpaid taxes. So far, the campaign has hardly reached the dizzy heights of the figures cited. In fact, HMRC recently released a report stating that just £7.8 million had been recouped to date, a mere 1.5% of their estimation.
The campaign is still relatively in its infancy. It is expected to continue for 4 to 5 years with the intensity and volume of letters being sent out to landlords set to dramatically increase. They have sourced the names and addresses of a huge number of landlords from all manner of sources, such as land registry and letting agents. HM Revenue and Customs have confirmed that a large proportion of the letters being sent are to landlords who are employees with one rental property.
The send outs are being staggered over a long period of time, simply to ensure HMRC can cope with the demand of responses. Already the campaign has caused quite serious delays with the disclosures currently taking up to 6 months to be accepted, whereas in the early days of the campaign, acceptance was generally taking around 4 weeks.
We must stress however, if you do have undeclared rental profits, and you have not yet received a letter, it is of paramount importance to come forward before HMRC come to you. It is only a matter of time before HMRC come looking and send the remaining landlords their letter, so it is best to come forward now.
Here at RITA, we have encountered various reasons as to why landlords have not declared their rental profits. Typical examples of incorrect assumptions being made include:
- Incorrectly believing that your letting agent pays the tax on your behalf.
- Not realising only mortgage interest is an allowable cost against rental income and that the capital element should be omitted.
- Incorrectly assuming that because tax is paid on your employment income then no further tax needs to be paid on your rental profits.
Of course, for those who are compliant, if you are in receipt of rental income, most taxpayers will need to report this to HM Revenue and Customs by 31st January 2015 via their 2013/14 self-assessment tax return. This must be filed online as the paper filing deadline has now passed. Any tax arising must also be paid by this date; there is no option to spread the payment via your tax code, as this deadline passed on 30th December 2014.
As previously stated, there are a wide number of expenses which may be claimed against your rental income to reduce the amount of tax owed. These expenses may include service charges, utility and insurance costs, repairs, finance costs, accountancy fees, letting agent fees, mileage, and telephone costs. Of course, this is just naming a few, and in the avoidance of doubt, it is always best to seek professional assistance. Should your expenses exceed your income, then the loss generated may be carried forward and offset against future rental profits.
For further help with your Let Property Campaign disclosure contact RITA4Rent on 0800 1 22 33 57 or
Disclaimer: The author’s views are entirely his or her own, and don’t necessarily reflect the opinions of Northwood
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