There are still cases “coming out of the woodwork” where properties are being let out, but rents are not being declared to HMRC.
Some seem to think there is no need to do so as they are not making a “profit” as expenses exceed income. However, in many cases this is after taking into account mortgage repayments – and only the interest element is allowable against rents, not the capital repayments.
Take a very simple example:-
| Rents received | 5000 |
| Other expenses | -3000 |
| Mortgage repayments | -3000 |
| “Loss” | -1000 |
So, whilst there may be a cash deficit, this is not correct for tax purposes.
The tax position is as follows:-
| Rents received | 5000 |
| Other expenses | -3000 |
| Mortgage interest | -1000 |
| “Profit” | 1000 |
HMRC have for many years run a Let Property Campaign which provides landlords with the opportunity to regularise their tax affairs by disclosing any outstanding liabilities. Participation is open to residential property landlords and is not suitable for those letting out non-residential properties.
Landlords that are “found out” by HMRC and do not use this scheme can face penalties of up to 100% of the tax due and possible criminal prosecution. There are much lower penalties for making use of the Let Property Scheme.
Please get in touch with us if you have any queries or concerns.
