Date posted: 17th Oct 2023
Rental income is a form of taxable income, that should be declared to HMRC.
There are many instances where individuals have mis-understood this and have therefore not declared the income to HMRC but not in a deliberate way.
Instances could be:
- Believing that they have not made any profit.
This is usually based on the assumption that the entire mortgage payment can be deducted as an expense, including any capital repayment. Sadly it is only the interest element that can be deducted and even that can be restricted where an individual has re-mortgaged the property to release funds personally. In addition, interest is not deducted as an expense anymore but relief is given as a tax credit.
- Losses
They have actually incurred genuine losses and therefore decided not to report the rental income and expenditure to HMRC under the simple idea that if there is no profit, there is nothing for HMRC to apply tax to. Whilst there is no tax loss to HMRC, by not declaring the losses may mean that those losses are ignored by HMRC as they were not declared within the appropriate timeframe and thus more tax is paid in the future, than necessary, if the losses had been available.
- Personal allowance not exceeded
They may have assumed that their personal allowance would cover any rental income. Again, this may be the case but some taxpayers do not realise that state pension is taxable (as no tax is deducted at source) and even then, the rental income may impact on the availability of some savings allowances.
- Non resident
The individual meets the non-residence conditions and therefore should not be subject to UK tax. However, if the rental income arises from a UK property, then they will still need to declare the rental income to HMRC as it is still a source of UK taxable income.
- Accidental landlords
They haven’t bought the property with the intention of letting out the property, but have perhaps kept their old home as the market conditions did not make it feasible to sell the property, when they moved to another house or perhaps moved in with a new partner.
If you have not declared rental income to HMRC, perhaps due to one of the above circumstances or another circumstance, then you should come forward and make a Let Property Disclosure (“LPD”) to HMRC. We have helped many new clients with their LPD and coming forward means that HMRC are more lenient in terms of calculating penalties for non-disclosures.
The sooner advice is taken, the better, in terms of negotiating with HMRC. As ever, we are here to help.
