Property Letting is the focus of a recent HMRC initiative and they have released some examples of common errors made by property owners when they let out their property. Many of these people do not consider themselves landlords as they did not set out to make a profit from their property. Your property letting could fall into any one of these situations:
People serving in the armed forces, or who work for multinational companies, may be required to relocate to another country for significant periods. Where their UK home is let out the rent should have tax deducted by the letting agent, or tenant, under the non-resident landlord scheme, unless the landlord has been granted gross payment status under that scheme. The landlord also needs to declare the rental income on their UK tax return.
Pub landlords who live above their pub may let out their former home. Even if the rent income only covers the mortgage payments on the property letting, the whole amount of income and expenses must be declared on the owner’s tax return.
Parents may buy a property for their offspring to live in while at university. Where the property is also let to other students, who pay rent to the parents, that income must be declared on the parents’ tax returns. As the property is not the main home of the parents the rental income does not fall under the £7500pa rent-a-room relief exemption.
An individual partly funds the cost of their room in a residential carehome by letting their former home. Although all the property letting receipts are used to pay for the carehome fees, the rent must be declared on the recipient’s tax return, and tax will be payable on the profits.
A property is inherited by siblings, and one of those individuals organises for it to be let out. The rent received belongs to all the siblings in proportion to their beneficial interests in the property, and should be reported on their tax returns as such. It is possible for the siblings to change the ratio in which the rental income is divided between them, if a declaration is made.
What can I do if I havent correctly declared property income?
If the property owner has not declared their rental income correctly they can make a full disclosure using the let property campaign disclosure service. Where the under declaration applies only to the last tax return, that return can be amended within one year of the filing date. Our tax investigation experts can advise on the best course of action.
For further information see HMRC’s guidance here