The UK tax authority is becoming even more serious when it comes to tax evasion. No matter how stealthy landlords are, they cannot hide from the system. To encourage landlords and property investors to come out and disclose their rental profits and own up as one, the government comes up with the Let Property Campaign (LPC).
LPC allows landlords and property investors to divulge their undeclared income and avoid heavier penalties than if HMRC sends them a nudge letter as a warning for tax investigations and they find out there are any discrepancies in your tax affairs.
Penalties can range from mild to severe, depending on the weight of your reasons for non-disclosure or failing to submit a self-assessment tax return. When out of carelessness, HMRC may just impose a trivial penalty, but when you are shown to have tax-evasive motives, the penalty may be very heavy than you can imagine.
There are several reasons you may not really see yourself as a landlord. It could be that you just inherited the property you’re currently renting out, you’re letting out a flat to pay for your mortgage, or you are moving in with someone and so, renting your home.
These are just some of the most common mistakes that landlords make, which we will discuss further below, and there are more. Here are several other errors that you might fall into as a landlord and thus, will have to go through LPC:
Moving in With Someone
You might have decided to move into your partner’s flat, and instead of selling your property, you just rent it out. Now you might think you don’t have to pay tax on your profits since it goes to your mortgage payments anyway.
But this is not how this works with HMRC. You will still need to declare your rental income, nevertheless. In this case, you can request to voluntarily disclose your previous income through LPC. The only allowable expense for you is just the interest amount of your mortgage repayment.
Renting Out an Inherited Property
When you inherit a house and decide to rent than sell it out, you still have to declare your rental income to HMRC, specifically through LPC. Using agents to help you find a tenant and collect the rent is a surefire way for HMRC to track you down as a landlord, especially if you have been renting it out already for several years.
Renting Out a Jointly Owned House
Or you might have gone through a divorce; hence, you and your partner move out into separate smaller properties. Instead of selling out your jointly owned house, you both decide to rent your property out and may even hire agents to find tenants as well as collect the rent. In this case, you both need to proactively act out on settling taxes on your rental profits rather than stall time until HMRC send you a nudge letter.
Relocating and Renting Out Your Former Property
If you and your partner have relocated and decided to just rent out your former house, you should tell HMRC your rental profits right away. This clearly subjects you to being a landlord as you are renting out a property, even if it’s a house you formerly resided.
Going to a Care Home and Renting Out Your Home
You or your sick or elderly loved one may have relocated to a residential care home, and in order to pay the care home fees, you just rent out your property. Even when all the rental income goes to the care home fees, it is still considered a taxable profit. This means you will have to pay taxes on the amount you earned from your rented-out home.
Buying and Renting Out a Property for a Family Member at University
For instance, you might have bought a flat at a university for your child and don’t charge him rent. If your child allows friends to live with him in the flat and make them pay rent, you are still obligated to report the rental income to HMRC through LPC whilst making sure they have deducted the allowable expenses.
Just Helping Out a Family Member
Another case is when you rent out to a relative or a family member, charging them a rate just enough to cover the mortgage payment. You might think you are just helping a family member out, so you don’t think you have to keep any legal paperwork for it.
In fact, they might just consider the entire mortgage payment as an allowable expense, which is not true at all. As mentioned above, the only allowable expense in the mortgage is just the mortgage repayment’s interest. In this case, you will have to be aware of what allowable expenses you can deduct from your rental profit so you can accurately calculate it.
If you fit in any of these situations, be proactive about disclosing your rental income to HMRC right away. HMRC gets a lot of tip-offs from various sources, informing them of those who are renting out their properties yet not paying taxes on their rental profits.
Through Let Property Campaign, which is a request to voluntarily declare your rental profits, you will be able to avoid getting heavier penalties, which could reach up to 30 per cent against your taxable income otherwise. Be sure to settle your taxes by yourself rather than wait for HMRC to investigate and discover tax errors on your part. Legend Financial can help you in this matter.
The UK tax authority is becoming even more serious when it comes to tax evasion. No matter how stealthy landlords are, they cannot hide from the system. To encourage landlords and property investors to come out and disclose their rental profits and own up as one, the government comes up with the Let Property Campaign (LPC).
LPC allows landlords and property investors to divulge their undeclared income and avoid heavier penalties than if HMRC sends them a nudge letter as a warning for tax investigations and they find out there are any discrepancies in your tax affairs.
Penalties can range from mild to severe, depending on the weight of your reasons for non-disclosure or failing to submit a self-assessment tax return. When out of carelessness, HMRC may just impose a trivial penalty, but when you are shown to have tax-evasive motives, the penalty may be very heavy than you can imagine.
There are several reasons you may not really see yourself as a landlord. It could be that you just inherited the property you’re currently renting out, you’re letting out a flat to pay for your mortgage, or you are moving in with someone and so, renting your home.
These are just some of the most common mistakes that landlords make, which we will discuss further below, and there are more. Here are several other errors that you might fall into as a landlord and thus, will have to go through LPC:
Moving in With Someone
You might have decided to move into your partner’s flat, and instead of selling your property, you just rent it out. Now you might think you don’t have to pay tax on your profits since it goes to your mortgage payments anyway.
But this is not how this works with HMRC. You will still need to declare your rental income, nevertheless. In this case, you can request to voluntarily disclose your previous income through LPC. The only allowable expense for you is just the interest amount of your mortgage repayment.
Renting Out an Inherited Property
When you inherit a house and decide to rent than sell it out, you still have to declare your rental income to HMRC, specifically through LPC. Using agents to help you find a tenant and collect the rent is a surefire way for HMRC to track you down as a landlord, especially if you have been renting it out already for several years.
Renting Out a Jointly Owned House
Or you might have gone through a divorce; hence, you and your partner move out into separate smaller properties. Instead of selling out your jointly owned house, you both decide to rent your property out and may even hire agents to find tenants as well as collect the rent. In this case, you both need to proactively act out on settling taxes on your rental profits rather than stall time until HMRC send you a nudge letter.
Relocating and Renting Out Your Former Property
If you and your partner have relocated and decided to just rent out your former house, you should tell HMRC your rental profits right away. This clearly subjects you to being a landlord as you are renting out a property, even if it’s a house you formerly resided.
Going to a Care Home and Renting Out Your Home
You or your sick or elderly loved one may have relocated to a residential care home, and in order to pay the care home fees, you just rent out your property. Even when all the rental income goes to the care home fees, it is still considered a taxable profit. This means you will have to pay taxes on the amount you earned from your rented-out home.
Buying and Renting Out a Property for a Family Member at University
For instance, you might have bought a flat at a university for your child and don’t charge him rent. If your child allows friends to live with him in the flat and make them pay rent, you are still obligated to report the rental income to HMRC through LPC whilst making sure they have deducted the allowable expenses.
Just Helping Out a Family Member
Another case is when you rent out to a relative or a family member, charging them a rate just enough to cover the mortgage payment. You might think you are just helping a family member out, so you don’t think you have to keep any legal paperwork for it.
In fact, they might just consider the entire mortgage payment as an allowable expense, which is not true at all. As mentioned above, the only allowable expense in the mortgage is just the mortgage repayment’s interest. In this case, you will have to be aware of what allowable expenses you can deduct from your rental profit so you can accurately calculate it.
If you fit in any of these situations, be proactive about disclosing your rental income to HMRC right away. HMRC gets a lot of tip-offs from various sources, informing them of those who are renting out their properties yet not paying taxes on their rental profits.
Through Let Property Campaign, which is a request to voluntarily declare your rental profits, you will be able to avoid getting heavier penalties, which could reach up to 30 per cent against your taxable income otherwise. Be sure to settle your taxes by yourself rather than wait for HMRC to investigate and discover tax errors on your part. Legend Financial can help you in this matter.
