The Let Property Disclosure Campaign has been operating for some years now, but are you aware of how this could affect you and some of the more recent changes to the legislation?
What is the Let Property Campaign?
The Let Property Campaign is an opportunity for people who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs and to take advantage of the best possible terms.
The campaign encourages people to come forward and declare to HMRC that they own second properties or more, that they are renting them out, and to declare the related taxable income.
Things you may not be aware of
If you rent your property out via a letting agent, that agent has an obligation to inform HMRC.
If you need a mortgage to purchase your property or if you’re looking to re-mortgage, and you use a lender to arrange a buy-to-let mortgage, that lender also has an obligation to inform HMRC. And even if your second home is mortgage free and you are managing the property rental privately, you still need to ensure that HMRC is informed.
What are the tax penalties if you delay declaring your additional property tax liabilities?
There is a sliding scale of tax penalties. For example, if HMRC deems that you have deliberately not disclosed your tax liability, in terms of a second property, you may be liable of up to a 70% tax penalty - which is 70% of the tax owed.
If HMRC believe that your non-disclosure has been carried out fraudulently and negligently, the tax penalty can be up to 100% of the tax owed.
What are the tax penalties if you inform HMRC via the Let Property Campaign?
If you inform HMRC via the Let Property Campaign, you will usually incur a 20% tax penalty, which is much less than a potential tax penalty than if you do not declare the additional properties you own and rent out and HMRC has to prompt you to disclose this.
How do I work out what my tax penalty might be?
The Let Property Campaign considers additional properties and generated income from these properties for 20 years prior to the current date.
To work out your potential tax penalties you need to total your income and expenses from the second home or homes, then, summarise all undeclared income and expenses from your rental properties and calculate the tax which should have been declared during this time. You will, therefore, need details of your other taxable income for the relevant tax years to work this out.
Interest then needs to be added and the tax penalty applied that has been selected in your disclosure.
For example, if a client is disclosing for the previous four years, Haworths will generally ask for a 10% penalty, and any additional years prior to this to be disclosed, could be 20% and more.
How can Haworths help?
The Let Property Campaign is an online disclosure, so agents like Haworths can make this for you and calculate the additional income tax that is due and liaise with HMRC on your behalf.
How has the Let Property Campaign changed recently?
The Let Property Campaign now includes offshore income. For example, if you have foreign bank accounts earning interest, or if you have income from foreign holiday lets banked in foreign banks and you are a UK resident, this income also needs to be disclosed in the Let Property Campaign and tax must be paid on your worldwide income and gains, regardless of where that money is sitting.
The Let Property Campaign also includes other taxes such as Capital Gains Tax for when you sell a property, VAT and Stamp Duty.
I have a mortgaged holiday home that I rent out, but this currently makes no profit, do I need to declare this under the Let Property Campaign?
Many people may buy a second home to rent it out as a holiday let and may not disclose the income and expenses from the property, as one of biggest misconceptions is that if an individual has a mortgage attached to that property and they are not making profit they often think that they don’t need to declare it.
What often happens is that people will deduct the full cost of the mortgage against the income, but you can only claim tax relief for the interest element of the mortgage. The capital repayment element isn’t deductible against the rental income.
If you feel that the Let Property Campaign applies to you and you need help navigating the rules, penalties and declarations, the Haworths team can work with you on this. Call 01254 232521 or email [email protected].