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Let’s talk the Let Property Campaign

  • 4 min read
  • 21 Oct 2020
Let’s talk the Let Property Campaign

The Let Property Campaign is what HMRC describes as the “opportunity” (take that as you will) for landlords to disclose their rental property earnings to get themselves up to date with tax affairs. 

Basically, this means that if, as a landlord, you’ve not declared your rental income to HMRC before (and therefore you’ve not paid tax on it), this is your opportunity to do so with only minor ramifications.

Why are they doing this?

In the UK, there are roughly 1.5 million landlords. But only 500,000 of those are listed on HMRC’s books. That’s a big discrepancy – and in the current climate, debts are being collected to urgently raise funds to cover what we’ve lost in the pandemic.

HMRC data showed that the highest concentration of undeclared rental income occurred in the three following regions:

  1. South East London
  2. Leicester
  3. Birmingham

But in reality, the Let Property Campaign scheme has actually been active since 2013. Since then, HMRC have been sending out batches of what are known as nudge letters. They, as you might expect, nudge you to get your act together and to pay the taxes that you owe. 

And HMRC’s tentacles are far reaching. The scheme applies to you whether you rent residential property in the UK or further afield overseas. If you get one of these letters, you’re given 30 days to get in contact with HMRC and three months to get the taxes you owe paid. 

What counts as a residential property?

Part of the reason that we have a big discrepancy between declared landlords and actual landlords is not that tax evasion is popular among property tycoons, but that not everyone identifies with being a landlord.

Whether you have a single room, two properties or 200 properties, you’re classed as a residential landlord in the eyes of HMRC.

Here’s a list of what counts as residential property rental:

  • You rent out a single property
  • Landlords with multiple properties – UK or abroad
  • You have specialist properties for students or workforces
  • Holiday rentals
  • You rent out a room in the house you live in
  • You live abroad (or plan to) for 6 months or more and rent out your property while you’re away
  • Airbnb holiday home or room rentals

Are there any exceptions?

Yes, there are. 

You’re actually not always liable to pay tax on rental income, or rather, it all depends how much you earn. 

  • Rent-a-Room scheme – if you only rent a room out in the house that you’re living in, you’re covered by the Rent-a-Room scheme. It allows you to earn up to £7,500 per year tax-free. Anything you earn above that is taxable. Read more about Rent-a-Room here
  • Property Income Allowance – if you rent out a second home, holiday home or buy-to-let property, you can earn up to £1000 in rental income tax-free. Anything earned above this is liable to be taxed.
  • 20% tax credit – if you rent a second home, holiday home or buy-to-let property, you can claim a 20% tax credit on your mortgage interest, property profits or overall income – whichever is lowest. Read more about the 20% property tax credit here.  
  • Expenses – unless you’re claiming the Rent-a-Room scheme, you can deduct your expenses from your income when it comes to calculating the tax you owe. This can be anything from ground rent to accounting fees. Read more about allowable property expenses here

I’ve not got a letter

Don’t be fooled. Even if you’ve not got a letter yet, this doesn’t mean that you won’t be sent one. The Let Property Campaign scheme is ongoing and you’ll be treated more favourably by HMRC if you disclose your income than if they chase you. 

If you disclose, you’ll pay up to 20% in penalties. If you’re investigated by HMRC, you’ll pay up to 200%.

In the 2017/18 tax year, HMRC collected £21,000 in unpaid taxes through the Let Property Campaign

In the 2018/19 tax year, the figure doubled. They collected £42,000 with 16,000 landlords reportedly disclosing

I’m an Airbnb host

If you rent a room or a property through Airbnb, you are classed as a residential landlord by HMRC. This means that you’re liable to pay tax on your Airbnb rental income. If you’ve never done a tax return before, don’t panic. 

Lots of people are in the same situation and there’s always a way to solve it.

TaxScouts are currently offering 10% off tax returns to Airbnb hosts. Sign up here.

How do I disclose?

There are three steps to making a disclosure. 

  1. Notify
  2. Disclose
  3. Prepare and calculate

You should first get in contact with HMRC if you need to notify them of any undeclared income from residential property. You can do this either for yourself or for someone else, but you’re only allowed to make one disclosure. That means that if you jointly own a property, both you and your co-owner will need to make separate disclosures.

You can do this via the Digital Disclosure Service form.

Next, you’ll need to disclose the income you owe and pay up. It’s worth getting help with this because if you go wrong, the consequences could be unfortunately pricey. The reason for this is that it can be complicated calculating your backdated tax owed. You will need to consider the following things:

  • Your rental income
  • Any relevant expenses to deduct from each tax year
  • Rental losses
  • The penalties for late payment
  • Income tax rates each year you’ve not paid

Take a look at our Rental Income Calculator to get an idea of how property income tax is calculated and how much you might owe before the penalties.

Your situation

Outlined number oneOutlined number one
What kind of landlord are you?
Monthly rental income
Annual salary
?
Other income
?

Tax and profit

Outlined number two
  • Earnings from rent
    £18,000
    Incl. £1,000 tax-free property allowance
  • Property tax to pay
    £4,346
  • After-tax rental income
    £13,654

How your rental income tax is calculated

Your total rental income tax that you have to pay to HMRC depends on three things:

  • How much you earned from rent
  • If you also live there or not
  • How much you earned from other income sources (salary, self-employment, etc., but not capital gains)

In your case you earned £18,000 from renting out a buy to let property, on top of £38,000 from other sources.

Rental income tax breakdown

Your rental earnings are £18,000

You can claim £1,000 as a tax-free property allowance.

As a result, your taxable rental income will be: £17,000.

The first £12,270 will be taxed at 20%: £2,454 in rental income tax.

The next £4,730 will be taxed at 40%: £1,892 in rental income tax.

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