Slow progress in HMRC’s targeting of landlords

4 Aug 2020

red brick town houses

HMRC’s Let Property Campaign, which encourages taxpayers to voluntarily disclose any tax they owe on their rental properties, led to 16,318 disclosures in 2018-19, an increase of 147% from the previous year. However, this decreased by 55% to only 7,362 disclosures in 2019-20, according to new data obtained by Saffery via a Freedom of Information request.

In its original announcement for the campaign in 2013, the government estimated that up to 1.5 million landlords had underpaid or failed to pay up to £500 million in tax between 2009 and 2010.

Since then, 58,779 people have made voluntarily disclosures to HMRC, only 3.9% of the original target, while the amount of tax yield recorded by HMRC from these disclosures is £163 million, which is just under a third of their original target.

One of the conditions of the Let Property Campaign is that once a taxpayer has informed HMRC of any relevant income, gains, tax and duties which were previously undisclosed, they must make a formal offer to pay the full amount that’s owed.

In 2018-19, 15,009 taxpayer offers were made. When this figure is compared to the number of disclosures made in the same year, it suggests that 92% of disclosures led to offers. However, this is only an indicative rate, as the figure for total offers may include offers relating to tax disclosures made in previous years.

The annual yield recorded by HMRC for 2018-19 was £47 million. This is more than double the yield of the previous year.

In the most recent year, 2019-20, while the number of disclosures decreased by 55%, the recorded yield only decreased by 33% to £31 million, still the second highest year on record by a sizable margin.

In 2019-20, taxpayer offers represented 84% of disclosures, the lowest conversion rate since the campaign began.

Reasons for disclosing

When an individual makes a disclosure through the Let Property Campaign, they are asked to decide why they failed to disclosure the information. Understanding the reason behind the unreported income is key, as that provides the starting point from which HMRC can charge penalties that are in addition to the tax due and the late payment interest that will also be due.

The freedom of information request revealed the reasons given for disclosures, with the vast majority being due to either a ‘failure to notify HMRC’ or ‘taken reasonable care’.

The later should only be indicated by the taxpayer if they can demonstrate that, despite the fact the information they submitted was inaccurate, they took reasonable care to ensure that the information was accurate. This can be challenged by HMRC and if they are found not to have done so they can be charged a penalty on top of the tax that they owe.

  • Failure to notify HMRC: 12,288
  • Not taken reasonable care: 1,166
  • Taken reasonable care: 11,371
  • Deliberate: 286

Zena Hanks, partner in the Private Wealth team at Saffery, comments:

“24 years since the introduction of the self-assessment system, the Let Property Campaign is emblematic of a growing move in UK tax policy to demand more responsibility of the taxpayer for the accurate and timely reporting and payment of tax. The Let Property Campaign has so far netted HMRC an additional £163 million in tax, which is likely to encourage HMRC to continue with these targeted campaigns to ensure taxpayer compliance.

“The spike in the number of disclosures in 2018-19 may reflect the emerging threat of Requirement to Correct penalties, which began to be levied on undisclosed foreign property rental income as of 1 October 2018. Furthermore, the spike may also be a consequence of the property tax changes that have been introduced in recent years. These include restrictions to the deduction for buy-to-let finance costs, restrictions to Principal Private Residence (PPR) Relief and Lettings Reliefs and the recent introduction of the 30-day window for the payment of capital gains tax. All of these changes may have unsettled landlords unsure of their new tax position.

“The most common reason that was cited for disclosing to the campaign was taxpayer failure to notify HMRC of liabilities in the first place, which is likely a reflection of the fact that many of these landlords may have been unaware that they owed anything at all.

“The government is faced with the task of paying for the surge in public spending generated by the Coronavirus relief measures, and maximising tax compliance will be a critical step towards this goal.

“It should be remembered that a growing proportion of landlords in the UK never intended on becoming landlords in the first place, they may simply be helping an elderly relative, or may have bought a new house and found they were unable to immediately sell the old one, and so chose to rent it out in order to make ends meet.

“Where an individual becomes a landlord, albeit accidentally, this role comes with additional reporting obligations which need to be taken seriously. Whilst the majority of landlords are unlikely to be seeking to deliberately mislead HMRC or avoid tax, they do need to ensure that income received from a rental property is correctly disclosed to HMRC, albeit while navigating an increasingly complex tax landscape.”