HMRC Letter for Undisclosed Rental Income – What Should You Do?

Have you received an HMRC letter for undisclosed rental income? If yes, please get in touch with us to discuss your options and how we can help you in reporting letting income to HMRC.

HMRC Letter for Undisclosed Rental Income

Data from Tenancy Deposit schemes

HMRC have obtained data from Tenancy Deposit schemes to target landlords who haven’t disclosed their rental income or underdeclared their rental income from letting residential property and this HMRC letter for undisclosed rental income is urging taxpayers to check and correct their 2020/21 tax return, and their 2021/22 return if it has already been submitted.

Nudge letters

HMRC has also been sending nudge letters asking the taxpayer to fill in a property ownership history form along with a property declaration form with details of rent received and qualifying expenses to be deducted against rental income.

We have covered this in a separate article here.

Data from government-approved deposit schemes

HMRC has recently used data from government-approved deposit schemes for tenancies in England and Wales to identify individuals who have submitted deposits received from their tenants into a tenancy deposit scheme but they haven’t declared rental income on their tax returns.

HMRC has a wide range of powers to request data from a range of third parties to help it check the tax position of taxpayers and the Connect program used by HMRC can easily match landlords’ details against the data relating to individuals who submit self-assessment tax returns & report rental property income which can flag up the individuals who have not been filing self-assessment tax returns who are most likely to receive this HMRC letter for undisclosed rental income.

As a tenant’s deposit usually represents between 4-5 weeks of gross rent, HMRC will be able to estimate the total rental income for the year, based on the level of the deposits placed within the scheme.

HMRC’s letter for undisclosed rental income also reminds taxpayers that if they have disposed of the property, they must declare that sale or disposal, and pay capital gains tax (CGT) on any profit they have made.

This HMRC letter for undisclosed rental income usually stated that they are not opening a tax enquiry or compliance check, but it does ask the taxpayer to correct their 2020/21 tax return within 30 days.

HMRC letter for undisclosed rental income – Data obtained from Tenancy Deposit schemes

Let Property Campaign (Second Property)

Another letter from HMRC for income from letting property may reference the Let Property Campaign which is a lifeline for landlords who might not have realised they need to pay tax on rental income from their second property.

It’s possible if you were handling your own tax returns that as well as declaring too little income, you also failed to claim allowances and reliefs you were entitled to when reporting letting income to HMRC on your tax return.

In which case, it might be that even with a disclosure via Let Property Campaign, you won’t face as big a bill as you might expect.

Taking Part in the Let Property Campaign

To take part in the Let Property Campaign and get your property tax affairs in order, you need to:

1. – Notify HMRC of your interest
2. – Within 90 days of notification, disclose all undeclared income, gains, tax, and duty
3. – Tell them what you think you owe in total
4. – Pay it as soon as possible.

Or, slightly easier, you can get us to do all that on your behalf.

Assuming they’re convinced you weren’t engaged in a deliberate attempt to conceal your true income, the chances are they’ll accept your payment offer without additional penalties.

Further details about the Let Property Campaign are available here.

Handily, they may also let you spread your payments if what you owe amounts to a hefty sum and it’s clear that you can’t afford to pay it in one go.

What’s more, if they’re convinced that it really was just a misunderstanding or innocent mistake that led to the underpayment, they’ll only expect you to pay a maximum of six-years’-worth of underpayments.

That’s not bad compared to the 20-year limit that kicks in if they think you were deliberately trying to avoid paying tax.

HMRC letter for undisclosed rental income – How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029  if you need any assistance with the HMRC letter for undisclosed rental income or the Let Property Campaign and submitting the corresponding notification & disclosure to HMRC.