HMRC to continue tax crackdown on landlords
Despite relatively poor results, HMRC’s Let Property Campaign – first launched in 2013 – is set to continue, so what do landlords need to know?
Since 2013, HMRC has been running the Let Property Campaign, with the aim of recouping millions of pounds of unpaid landlord tax. The voluntary campaign allows landlords who think they may have underpaid their tax bill to come forward and repay what they owe on favourable terms. This is opposed to HMRC finding out independently and subsequently launching an investigation which could culminate in a substantial fine or custodial sentence.
The campaign is aimed at landlords with multiple or single property portfolios, accidental landlords, those with holiday lettings and those letting a room through the Rent a Room scheme. It also targets those who live abroad or intend to live abroad for more than six months and let a UK property.
How does Let Property work?
If landlords have undisclosed income, they're encouraged to contact HMRC through the Let Property Campaign immediately and then have 90 days to work out and pay what they owe. Once a landlord notifies HMRC that they want to take part, they are required to disclose any income, tax, gains and duties they've not previously told the authorities about. They must then make a formal offer to HMRC and pay what they owe. The campaign offers landlords the 'best possible terms' to get their tax affairs in order and there are reduced penalties available for those who provide the most accurate information. Landlords will pay a penalty depending on why they've failed to disclose their income. Those that have deliberately withheld information will pay a higher penalty than those who have simply made a mistake.
Has the campaign been a success?
When it was initially launched, Let Property was intending to recoup an estimated £500 million of underpaid tax by approximately 1.5 million landlords between 2009 and 2019. However, a recent Freedom of Information request by Saffery Champness has shown that the campaign has failed to recoup anywhere near that amount. The accountancy firm found that between 2013 and 2018, approximately £85 million (17%) was recovered from just 35,099 (2%) individuals. The tax year 2015-16 was the most successful with the highest number of disclosures (10,040) and taxpayer offers (9,038), as well as the highest yield recovered (£25.2 million). The most common reasons for disclosure were a failure to notify HMRC and making a mistake having taken reasonable care. A much smaller proportion of landlords have disclosed not taking reasonable care or deliberately misleading HMRC.
What do landlords need to do?
Landlords that feel they may have underpaid tax are advised to contact HMRC through the Let Property Campaign immediately. Despite its limited success, the campaign remains open and HMRC will be keen to recover as much unpaid landlord tax as possible. "The tax system is becoming more complex and the burden is shifting further towards the taxpayer. This inevitably means individual mistakes and misunderstanding can happen," says James Hender, head of private wealth at Saffery Champness. "HMRC have been tightening the net on non-compliance and there are increasingly few opportunities for taxpayers to mitigate the risk of an investigation." "This campaign is one of the few that remains open but, with the Common Reporting Standard online and the Failure to Correct penalty system in place, it’s likely to remain that way for only so long," he says.
"There are clearly many more landlords who have additional tax to pay, but have yet to come forward. These people would be well advised to contact the taxman sooner rather
An uncertain tax future for landlords?
Following a range of tax changes targeting the buy-to-let market in recent years, including the reduction of mortgage interest tax relief and the 3% stamp duty surcharge, it remains unclear whether the government intends to make further changes to the landlord tax system.
“We are picking up signals from the Treasury that some of the biggest money spinners for the last century, including tobacco, alcohol and fuel duty, are due to decline due to changing lifestyle habits,” says Lucy Brennan, partner at Saffery Champness. “There seems to be a pattern emerging of HMRC targeting other sources of tax revenues, with property being an asset that they could look to levy additional taxes on.”
“You only need to look at countries such as France and the US to see that, in comparison, UK property is a relatively lightly taxed asset.”
She says, however, that any new taxes are likely to provoke further backlash from the rental industry.
If you are concerned or have any queries about landlord tax, you are advised to seek independent advice from an industry expert. You can find out more about the Let Property campaign at www.gov.uk.