Real Estate

Let Property Campaign: 10 Tax Errors LANDLORDS Make 

What is HMRC’s Let Property Campaign? 

HMRC carries out several initiatives for specific tax issues and taxpayer sectors annually. Campaigns allow certain businesses, professions, and groups to voluntarily disclose any unreported income for which a tax liability has been incurred. The Let Property Campaign, Credit Card Sales, and Second Income initiatives are just a few of the disclosure campaigns that HMRC has previously run, some of which are still in effect. 

The Let Property Campaign specifically targets residential property landlords with hidden or unreported rental income. It is a chance for landlords who owe tax on residential property rented out in the UK or abroad to streamline their tax affairs and benefit from the best conditions. 

Landlords who haven’t registered with HMRC haven’t declared all their income or paid their taxes are at risk of being audited. They will have three months to calculate and settle their liabilities. 

Who is Landlord?  

You can become a landlord for various reasons; you may not even consider yourself one. This may be the case for the following reasons: Have you inherited a property? Have you just rented out an apartment to support your mortgage payments? Have you recently moved in with someone and need to rent your house? 

As part of its Let Property Campaign, HMRC has published examples of frequent tax mistakes made by landlords. Many may seem obvious, but some people are unaware of or have become complacent about their tax obligations when owning rental property.  

The article outlines ten possibilities, all of which result in noncompliance but can all be notified through HMRC’s Let Property Campaign. 

10 Common Tax Avoidance Landlords Make 

  1. Inheriting A Property 

The first scenario is of Winston, who inherited property from his ancestors. After receiving an inheritance, Winston decides that he would rather rent out the property than sell it. He employs the services of a local rental agent to locate a tenant for him and to collect the rent from that tenant. If there is a need for maintenance on the property, the brokers will coordinate it and deduct the cost from the rent. 

Winston had rented his home for some years but was unaware he was obligated to report the income to HMRC. Therefore, he becomes a non-taxpayer, and HMRC could levy fees if they initiated an investigation or compliance check without the information. Winston must take into consideration rules relating to Inheritance Tax. 

  1. Moving in Together 

The following scenario involves a couple who has decided to move in together. Several years ago, Sharifa chose to rent out her own house because she was moving in with her partner and would be living in his apartment. Since the revenue from the rental property is all that is needed to pay the mortgage, she does not believe that it is taxable because she is not generating a profit from it. 

Sharifa must know that the only mortgage expense she can count toward her rental income is the interest on her mortgage payment. The interest on mortgage payments is limited to the basic income tax rate, regardless of the rate she pays on other income. 

  1. Partners Getting Divorced 

The third case study involves a couple getting divorced. Carl and Beena own their home jointly, but they’ve decided to split up. They conclude that renting out the property they own jointly will be in everyone’s best interest, and both relocate into smaller homes. 

They have hired a property manager to find a renter and collect rent. They can study the instructions provided by HMRC to learn how to disclose their share of the earnings made from their rental properties. 

  1. Property Bought as an Investment  

The fourth possibility involves a prospective investor who purchased the property for the purpose of investment. Olivia made an investment in a property with the intent of renting it out. She hadn’t considered the possibility of additional tax liability associated with renting out a home. 

To determine whether or not Olivia is generating a profit from the money she receives from her rentals, she might consult the HMRC for help. Any profit that she makes from renting out her property needs to be reported to HMRC. 

  1. Jointly Owned Investment Property 

In the fifth example, two individuals jointly own property. Kate and Emma have entered into a civil partnership and recently purchased an investment property together. They intend to remodel the home and then rent it out to tenants. 

Kate and Emma are aware that they must report their rental profit to HMRC and that they can deduct some allowable expenses. 

Since Emma’s Income Tax is greater than average, they’ve decided to list all of her tax-deductible expenditures on her Self-Assessment tax return to reduce her tax liability. However, they have not complied with the guidelines. 

Kate and Emma are responsible for accurately accounting for the income and expenses related to their rental property, and they should study the instructions provided by HMRC about jointly owned rental property. 

  1. Relocation 

The next scenario discusses a couple relocating to another house and renting out the previous one. Ketan and Priya have been married for a very long time and are also co-owners of a home. They had to relocate due to employment constraints, and they rented their old property before moving. They failed to report the income from their rental property to HMRC. 

Although Ketan and Priya have rented out their residence for the previous three years, they have never registered the rental income with the HMRC.  

HMRC mandates that Ketan and Priya each report their respective share of the earnings from the rental property they own. If they fail to make a declaration, there will be penalties.  

  1. Moving into Care Home 

In the seventh instance, Brenda moves into a care facility. Since Brenda now resides in a residential care facility, she must find a way to cover the costs of the facility. She does this by renting out the property she has owned through a letting agency. 

All her rental income is used to pay for her nursing facility costs. Because of this, Brenda is under the impression that the profit she makes from renting out her property is exempt from taxation.  

To comply with HMRC regulations, Brenda is required to report any earnings she has made from renting out her property. 

  1. Apartments Bought for Children in Universities  

This case study involves a situation where parents or other family members buy houses for their children who are studying away from houses. Parents, Alan and Sue, purchased an apartment for their son to live in while attending university, and they do not charge him rent. Their son allows three housemates to reside with him, and they pay rent. The amount of rent received each month surpasses the mortgage payment. Since the arrangements with his roommates are informal, Alan believes he owes no tax. 

Under PAYE, taxes are deducted from Alan and Sue’s paychecks. After deducting authorized expenses, both must report the net rental profit to HMRC. 

Alan and Sue can refer to HMRC guidelines to figure out how to report their rental income. 

  1. Armed Forces Member 

The ninth possibility discusses the situational circumstances of all armed forces members who are posted away from the UK. Tom is in the armed services and learns that his next posting will be at an army facility in Cyprus, so he relocates there with his family. Tom and his wife Anna decide to rent a family home in the UK to a friend, but they forget to find out if doing so will have any tax considerations. 

To file a self-assessment tax return and report their rental income, Tom and Anna must review the regulations for non-resident landlords. 

  1.   Tied Accommodation 

The last one is relating to tied accommodations. Robert and Jane become pub landlords and move into the upstairs apartment. They rent their house to their nephew for the same amount as their mortgage. The couple doesn’t consider themselves landlords because they make no money renting out their house.  

They regard the arrangement as supporting a family member without official documents. They incorrectly consider the entire mortgage payment a tax-deductible expense, while only the interest is tax-deductible. 

Wrapping Up 

Let Property Campaign for Landlords doesn’t have to be hard, but landlords unknowingly make mistakes. Anyone who can connect to any of the circumstances mentioned earlier or who, for another reason, hasn’t declared their rental revenues to HMRC is given the opportunity to do so through the Let Property Campaign. 

This opportunity is available to anyone who owns rental property. If you don’t know how to take part in Let Property Campaign, Legend Financials landlord tax specialist is ready to help. We will do the process on your behalf and act as a buffer between HMRC and you. 

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