Accidental landlords – don’t get caught out by the income tax trap

Around 7% of landlords in the UK are ‘accidental’ and never intended to let out a property. Reasons for being an accidental landlord include inheriting a property that hasn’t been sold on and being forced to let out a home that cannot be sold.

As an accidental landlord, understanding the laws around income tax and what needs to be declared can be difficult and, for many, it can also be somewhat of an unknown. HMRC estimates there’s approximately 700,000 landlords in the UK that have been receiving rent for a property, but haven’t been declaring it. For each year that passes, the tax bill is mounting.

In 2019, the government started to invest heavily in a specialist task force to hunt for landlords who had not been declaring rental income. Penalties for undisclosed income can be hefty, ranging from 15% up to 100% of the rental income in some cases. However, all is not lost. For landlords who haven’t yet had the opportunity to declare previously unreported income, the Let Property Campaign is giving landlords the chance to get their tax affairs in order.

Donna McCreadie is a buy-to-let specialist at Perrys Chartered Accountants. She said:

“The Let Property Campaign was originally launched in 2013, but many people are still unaware of its existence. I often have landlords coming to me who are really distressed or worried because, for some reason, their income from a rental property hasn’t been declared. Once I explain the mechanics of the Let Property Campaign to them, it really helps to ease the burden. We then work together to put a plan into action so that the tax owed can be settled with the minimum of fuss.”

What is the Let Property Campaign?

Essentially, it is a government initiative which allows landlords to tell HMRC about any unpaid tax now. Landlords will then have 90 days to work out and pay what they owe with minimal penalties. It covers landlords in the following situations:

landlords with multiple properties
landlords with single rentals
those with student or workforce rentals
holiday lets
those renting a room out from their main home
those who live abroad for more than six months and rent out a property in the UK

However, if you’re renting out a non-residential property, such as a shop or garage, or you are disclosing income on behalf of a company or a trust, the campaign does not apply.

Donna continues:

“Tax on rental property can be a complex area so it’s important that landlords who are unsure seek professional guidance. A specialist accountant, for example, can guide you through the rules and regulations, help you calculate the tax owed and ensure any mitigating factors are correctly applied.”

Despite no disclosure window being in force, landlords who delay coming forward risk higher penalties. Donna added:

“I’d urge anyone who hasn’t declared their rental income to come forward as soon as possible so that any penalties are as minimal as possible.”