HMRC has landlord in their sights, and are targeting them in their latest focused efforts to plug the tax gap. This could be undeclared rental from short/long term lets, unpaid capital gains tax on disposal or incorrectly applied tax reliefs.
Using data from tenancy deposit schemes is allowing HMRC to target their cross hairs where they suspect an under declaration.
Landlords in England are limited to a five weeks deposit for new and renewed tenancies with rent under £50,000 a year or up to six weeks if the annual rent is £50,000 or more.
Most landlords opt for the maximum deposit, allowing HMRC to easily calculate the estimated rental income they expect to see on a tax return.
Additionally, details of property advertised online on sites such as Airbnb, will be compared with tax return information held by HMRC.
Where it appears that a landlord has not declared all or some of their letting income, HMRC will most likely issue a ‘nudge’ letter to the landlord. This nudge letter will include a request to complete a Certificate of Tax Position.
The letter urges the taxpayer to check and correct their 2020/21 and 2021/22 tax returns.
What to do
Anyone receiving a nudge letter should get in touch to allow us to guide you in what can be delicate negotiations with HMRC in the 30 day period provided. Time will be of the essence, so do not prod the bear and ignore the letter.
The Dafferns tax team can advise and guide on the route that the process may take and check the validity of the HMRC information which can be flawed in the following examples:
- Vacant periods
- Reductions in rent
- Entitlement to only a % of the rental profits
- Occasional mistaken identity
Please do get in touch if such a letter is received. If they are ignored and it is found that tax is due, it may lead to an investigation and potentially a criminal prosecution.
Acting now, may also allow us to identify other tax planning opportunities available to you.
Now is the time to plan with your expert Dafferns tax team – please do get in touch with any questions.