HMRC’s Let Property Campaign Disclose undeclared rental profits

HMRC does not issue nudge letters randomly, so if you have received one, it is because HMRC believes you have failed to accurately report your rental profits.

Where sources of information do HMRC rely on to issue nudge letters?

HMRC receives information from a wide range of sources. This includes government departments such as HM Land Registry and the Valuation Office Agency, but also letting agents and third-party property hosting platforms such as Air BnB.

How do HMRC use the information it receives?

Where HMRC receives information that it considers inconsistent with the entries on an individual’s tax return, HMRC will want to understand the discrepancy. However, rather than investigating immediately, HMRC will issue a nudge letter and provide taxpayers with an opportunity to correct their tax affairs voluntarily.

What if I do not respond to an HMRC nudge letter?

Failing to respond to a nudge letter is likely to result in HMRC opening an enquiry. HMRC enquiries can be stressful and time-consuming, even if your tax affairs are in perfect order. Therefore, regardless of whether a disclosure is required, our experts recommend responding to HMRC. The precise nature of your response should be determined by your particular situation and our experts can make bespoke recommendations befitting your circumstances.

If you do need to make a disclosure, you must first register your intention to make one. We strongly advise speaking to an expert before registering because for some people, despite receiving a nudge letter that specifically mentions the Let Property Campaign, other disclosure facilities will more appropriate.

After notifying HMRC of intention to make a disclosure, how long will I have to submit it?

Once HMRC has confirmed your registration, you will have 90 days to prepare and submit your full disclosure. As part of your disclosure, you must quantify the tax loss, self-assess the penalties due, and include any interest that has accrued due to the underpayment of tax. The disclosure process also allows you to claim any previously undeclared tax reliefs. Our experts will ensure that your disclosure contains these claims and only discloses the tax liabilities you are obligated to pay.

By making an unprompted disclosure; i.e. making a disclosure when you have not received a nudge letter, you will secure a lower financial penalty and potentially, not pay a penalty at all.

Given the amount of information now available to HMRC, anyone failing to declare the full extent of their rental profits should expect to receive a nudge letter at some point in the future. Consequently, making a voluntary disclosure is an extremely attractive proposition and our experts will be happy to guide you through the process.

This will depend on a number of factors including whether you were filing tax returns during the period in question, where your rental property(s) are located and what led to the rental profits being under-reported. This is a complex area that your disclosure must get right, else HMRC will not accept the disclosure and instead, commence an investigation. 

Making a disclosure through the Let Property Campaign enables taxpayers to self-assess their penalty liability. However, the self-assessed penalty must be calculated in accordance with how HMRC would calculate the penalty liability if they were investigating. When calculating the penalty it is necessary to consider:

• the timing of your disclosure relative to the irregularities in your tax affairs,
• whether you were prompted to make a disclosure,
• the reason why the irregularities in your tax affairs were present, and
• your level of co-operation when correcting the position.

There is a great deal to consider and our experts have years of experience in ensuring that self-assessed penalties are accepted by HMRC, without clients paying a penny more than they have to.