HMRC Let Property Campaign Specialists

The HM Revenue & Customs (HMRC) Let Property Campaign provides individual landlords with an opportunity to disclose previously undeclared residential property income and bring their UK tax affairs up to date.

If you have received rental income that has not been fully declared to HMRC, dealing with the position voluntarily can be important. The amount ultimately payable can depend not only on the rental profits and tax involved, but also on why the income was not declared, how many years HMRC can assess and the level of any penalties.

GSC Tax Consultancy provides specialist assistance to landlords making disclosures under the Let Property Campaign. We can manage the disclosure from the initial notification through to calculation, submission and settlement with HMRC.

Our team includes former senior HMRC tax investigation specialists with extensive experience of HMRC enquiries, disclosure work, tax investigations and penalties.

What GSC Tax Consultancy Can Do for You

Making a Let Property Campaign disclosure involves considerably more than simply telling HMRC how much rent you received.

The disclosure may require reconstruction of several years of property accounts, consideration of allowable expenditure, calculation of Income Tax and Capital Gains Tax where relevant, interest calculations and a careful analysis of the appropriate penalty position.

GSC Tax Consultancy can:

• review your circumstances and establish whether the Let Property Campaign is the appropriate disclosure route;
• notify HMRC of your intention to make a disclosure and deal with HMRC on your behalf;
• establish which tax years need to be included;
• reconstruct rental income and expenditure where complete historic records are unavailable;
• review bank statements, letting-agent statements and other property records;
• identify allowable property expenses and deductions;
• calculate the taxable rental profit for each relevant year;
• calculate the additional Income Tax and, where relevant, Capital Gains Tax due;
• consider whether any other previously undisclosed income or gains need to be included;
• calculate HMRC late-payment interest;
• analyse whether the underlying behaviour was reasonable care, careless or deliberate;
• determine the appropriate statutory penalty range;
• distinguish between an unprompted and prompted disclosure;
• prepare representations supporting the appropriate penalty percentage;
• prepare and submit the complete Let Property Campaign disclosure;
• prepare the formal offer of settlement;
• liaise directly with HMRC if it raises questions about the disclosure;
• negotiate with HMRC where it challenges the tax, years or penalties included;
• assist with payment arrangements where the full liability cannot immediately be paid; and
• help ensure that your rental income is correctly reported going forward.

One of the most important parts of our work is ensuring that the disclosure is complete and technically correct without unnecessarily overstating the tax, number of years or penalties due.

What is the HMRC Let Property Campaign?

The Let Property Campaign is an HMRC disclosure facility aimed at individual landlords who owe tax as a result of letting residential property in the UK or overseas.

HMRC describes the campaign as an opportunity for landlords with undisclosed residential property income to bring their tax affairs up to date.

The campaign can apply to a wide variety of circumstances, including landlords who:

• rent out a single residential property;
• own several rental properties;
• rent out a room in their main home where the income exceeds the relevant Rent a Room Scheme limits;
• have income from holiday lettings;
• live outside the UK but rent out UK residential property; or
• have inherited a property which is subsequently rented out.

The campaign is aimed at individual landlords. HMRC's current guidance confirms that it is not the appropriate disclosure route for residential letting income arising to a company or trust.

HMRC – Let Property Campaign: guide to making a disclosure

When Should a Landlord Make a Disclosure?

A disclosure may be necessary where rental income should have been declared but was omitted or understated.

This can arise for many reasons. For example, someone may have become an accidental landlord after moving home, inherited a property, misunderstood the tax treatment of jointly owned property, incorrectly assumed that mortgage payments were fully deductible, or simply failed to register for Self Assessment.

HMRC's guidance makes clear that the campaign is available whether the error arose from misunderstanding the rules or from deliberate conduct. The reason for the failure is nevertheless extremely important because it can affect both how far HMRC can look back and the penalty payable.

How Does the Let Property Campaign Process Work?

The process normally begins by notifying HMRC that you intend to make a disclosure.

At this stage, HMRC's guidance says that you do not need to provide the details of the undisclosed income or calculate the tax you think is due.

HMRC subsequently issues a Disclosure Reference Number and payment reference.

Once HMRC acknowledges the notification, the disclosure generally needs to be completed within 90 days of the date of the acknowledgement.

The disclosure must calculate the relevant tax, interest and penalties and be accompanied by payment or appropriate arrangements for payment.

This 90-day period makes it important to start gathering historic records promptly, particularly where the disclosure covers several properties or many tax years.

HMRC – Let Property Campaign enquiries and contact details

How Many Years Can HMRC Go Back?

This is one of the most important areas to establish before calculating a disclosure.

HMRC's current Let Property Campaign guidance explains that the period depends on why the correct amount of tax was not paid.

Broadly, the relevant periods can be:

Reasonable care – up to 4 years

Where the landlord registered appropriately and took reasonable care but nevertheless paid insufficient tax, HMRC's guidance states that the disclosure may extend back a maximum of four years.

Careless behaviour – up to 6 years

Where insufficient tax resulted from a failure to take reasonable care, the period can extend to a maximum of six years.

Deliberate behaviour – up to 20 years

Where the failure was deliberate, HMRC can potentially seek tax going back as far as 20 years.

Failure to notify – potentially up to 20 years

Where a landlord should have notified HMRC of a liability but failed to register for Self Assessment by the appropriate deadline, HMRC's campaign guidance states that liabilities may potentially extend back up to 20 years.

These distinctions can make a substantial difference to the overall settlement. The correct behaviour should therefore be established from the facts rather than automatically accepting that a 20-year disclosure is required.

The wider statutory framework includes HMRC's discovery assessment powers under section 29 Taxes Management Act 1970, with extended assessment time limits governed principally by section 36 Taxes Management Act 1970.

HMRC guidance – Discovery assessments under section 29 TMA 1970

What Rental Expenses Can Be Claimed?

The disclosure should be based on taxable rental profit, not simply gross rent received.

It is therefore important to identify expenditure that is deductible under the property income rules.

Depending on the circumstances and the tax year involved, relevant costs may include items such as:

• letting-agent and management fees;
• insurance;
• repairs and maintenance;
• professional fees;
• replacement of certain domestic items;
• service charges and other property costs; and
• other expenditure incurred wholly and exclusively for the purposes of the property business.

The tax treatment of finance costs for residential property has changed significantly over time, so mortgage interest should not simply be treated in the same way for every year of a historic disclosure.

Where records are incomplete, it may still be possible to reconstruct the position from bank statements, letting-agent records and other evidence. HMRC's own Let Property Campaign guidance recognises that estimates may sometimes be necessary, although the methodology should be capable of explanation.

HMRC Let Property Campaign Penalties

Penalties are an important part of the disclosure and should be considered carefully.

Different statutory penalty regimes can apply depending upon what went wrong.

Where an inaccurate return was submitted, the relevant provisions may include Schedule 24 Finance Act 2007.

Where the taxpayer failed to notify HMRC of a liability, the relevant penalty regime is generally contained in Schedule 41 Finance Act 2008.

HMRC's penalty framework takes account of the taxpayer's behaviour and the nature and quality of the disclosure.

The categories can include:

• reasonable care;
• careless behaviour;
• deliberate but not concealed behaviour; and
• deliberate and concealed behaviour.

For domestic matters, HMRC states that penalties can potentially reach 100% of the additional tax, while offshore liabilities can potentially attract higher penalties of up to 200%.

However, those figures are not automatically the penalty that should be paid.

HMRC's guidance confirms that voluntary disclosure will normally result in lower penalties, and where the taxpayer genuinely took reasonable care there may be no behavioural penalty at all.

The quality of the disclosure can therefore have a significant impact on the final penalty.

Finance Act 2007 – Schedule 24 penalty legislation

Finance Act 2008 – Schedule 41 failure-to-notify penalties

Why Making a Voluntary Disclosure Can Matter

There can be a significant difference between approaching HMRC voluntarily and waiting for HMRC to identify the undeclared income.

HMRC's current guidance states that penalties will usually be lower where a voluntary disclosure is made.

HMRC also makes clear that if it discovers undeclared rental income first, higher penalties may apply and, in serious cases, criminal investigation is possible.

HMRC increasingly receives property-related information from numerous sources. Waiting for HMRC to make contact can therefore materially change the disclosure and penalty position.

Where HMRC has already notified a taxpayer that it intends to open an enquiry or compliance check before the taxpayer notifies an intention to make a Let Property Campaign disclosure, HMRC says that the campaign is unlikely to be the appropriate route. The disclosure should instead normally be made to the officer conducting the enquiry.

What If I Have Already Received a Letter From HMRC?

Receiving an HMRC letter does not mean you should simply submit a Let Property Campaign disclosure immediately.

The nature of HMRC's contact needs to be established first.

If HMRC has already opened an enquiry or compliance check, the appropriate disclosure route may be different.

GSC Tax Consultancy can review the HMRC correspondence and advise whether the Let Property Campaign remains appropriate or whether the matter should instead be dealt with as part of the existing HMRC investigation.

Undeclared Overseas Rental Property

The Let Property Campaign is not restricted to UK property.

HMRC expressly states that it can apply to individual landlords with undeclared rental income from residential property in the UK or abroad.

Overseas property requires additional care because offshore income can engage different assessment and penalty provisions.

Where foreign rental income or gains are involved, we can consider the UK tax treatment, residence position, Double Taxation Agreement relief where relevant and the appropriate offshore disclosure and penalty rules.

Capital Gains and Other Undeclared Income

A Let Property Campaign disclosure may reveal other historic tax issues.

HMRC's current guidance requires taxpayers using the campaign to include other previously undisclosed income and gains that should form part of the disclosure. This can include investment income, income from non-residential property and capital gains on disposals of property or other investments.

It is therefore important to review the whole tax position rather than calculating the rental income in isolation.

What Happens After the Disclosure?

HMRC reviews disclosures submitted under the campaign.

If HMRC accepts the disclosure and the accompanying offer, its acceptance creates a contractual settlement.

HMRC may nevertheless ask questions or request evidence before accepting the disclosure.

This makes it important that the figures, behaviour analysis and explanations submitted to HMRC can be supported.

HMRC warns that materially incorrect or incomplete disclosures may not be accepted and can potentially lead to substantially higher penalties or further investigation.

Why Use GSC Tax Consultancy?

The Let Property Campaign is a disclosure process, but the underlying issues are fundamentally tax investigation and penalty issues.

GSC Tax Consultancy's team includes former senior HMRC specialists with extensive experience of tax compliance, investigations, penalties and dispute resolution.

We approach a disclosure from both perspectives: calculating the correct tax and anticipating how HMRC is likely to review the disclosure.

Our objective is to produce a disclosure that is accurate, complete and properly supported, while ensuring that you do not unnecessarily concede additional years, liabilities or penalties that are not properly due.

Speak to an HMRC Let Property Campaign Specialist

If you have undeclared rental income, have received an HMRC landlord letter or are concerned that previous rental income has not been correctly reported, obtaining advice before contacting HMRC can be important.

We can review your circumstances confidentially, establish the appropriate disclosure route and manage the process with HMRC on your behalf.

Contact GSC Tax Consultancy for a confidential initial discussion about your Let Property Campaign disclosure.