Landlords must pay rental tax on their residential and commercial property if they want to be in the property business. With rental income being charged up to 45% tax, landlords may be tempted not to declare their earnings from rental property to the HMRC and avoid paying this tax altogether. However, the HMRC is very resourceful and can find out about your hidden rental property income. Let’s understand how.
Paying tax on profit from renting out your property
You pay taxes on all rents made on rented homes. How you pay depends on: The profits are those remaining after adding in rental income or eliminating any expenses or allowance that may be claimed. Whenever you leased more than one building you will add profit or loss to the total property value to make up the total property value. However profit losses from overseas properties should separate from property on UK soil.
How is my rental income taxed?
Just like other sources of income, you as professional landlord must pay income tax and must declare any income you receive from rent, non-refundable deposits, and money received for repairs. The total sum must be reported to HMRC and the amount of tax due is determined by the personal tax bracket into which your total income falls.
6 ways the HMRC can find out about your rental income
As a landlord, you may want to hire an estate agent to manage your property. According to rules set out tax year by HMRC:
- Estate agents who are unregistered with HMRC cannot carry out their estate agent work.
- Once they are registered, they have to comply with many regulations.
HMRC believe that estate agents are the first source that can identify any suspicious activity since they usually own rental property generates come in contact with both buyers and sellers. Estate agents are required by the law to do a thorough background check on their clients. Failure to comply can cost the estate agent dearly and they do not want that. Hence, HMRC can easily find out about your undisclosed rental income tax, if they wish to.
HM Land Registry
HM Land Registry, which maintains records on almost all homes and plots of land sold in England and Wales since 1993, is in contact with HMRC. The data maintained consists of the title registry, whether it is on a lease or not, the registered owner at the time, the price paid when selling property, information on any mortgages, and other things.
So, if you own many properties more than one property and do not disclose your property rental and income, it is a huge red flag and HMRC can heavily penalise you for it.
There may always be someone in your life who knows that you are evading tax. It can be anyone from jealous partners, colleagues, ex-spouses, and even the neighbours. While it does sound silly, the HMRC takes this information very seriously, especially when there is evidence that you are evading tax under personal circumstances.
Every landlord takes a security deposit upfront from their renters to cover any unforeseen costs, such finance costs such as damages or rent arrears. According to the rules, these deposits can only go in a government-approved deposit scheme. Any such schemes are heavily monitored by the HMRC.
Stamp duty land tax (SDLT)
Individuals purchasing homes in England and Northern Ireland must pay the stamp duty land tax (SDLT). The SDLT department is one of the many subdivisions of the HMRC. They store all the data related to the purchase of properties, such as the property’s address, the purchase price, and the amount of SDLT tax liability owed at the time of purchase.
Individuals who are registered to vote show up in the electoral register. These criteria must be met in order to vote:
- You must be over 16 years old.
- You must be a national of the UK, EU, or from a Commonwealth country.
The rule is that you must pay tax register twice if you own two homes and so on. Your National Insurance number is linked to your property in the uk. electoral registration process, which is again heavily monitored by HMRC.
Consequences of not declaring your rental income
While a few landlords hide their rental income on purpose, some might fail to do so because they either made a mistake or have been busy elsewhere. This, however, is not a justification for failing to report all of your own property rental income and revenue.
While HMRC will evaluate each case on an individual basis, if HMRC believes a landlord has been purposefully dodging taxes, it may be able to recoup 20 years’ worth of tax payments. In addition to tax relief, they have the authority to levy fines equal to the sum of any overdue taxes and any underpaid taxes.
The HMRC gives landlords an opportunity to declare their undisclosed rental income through the buy to Let property campaign. This opportunity gives landlords a chance to get up-to-date with their tax affairs on the best possible terms. Once you disclose your undeclared income and council tax due, you will have 90 days to pay your dues.
How Our Landlord Accountancy Services Can Help You
It’s important for landlords to take into account a few things. It is easy to get overwhelmed when you have a portfolio in place. You don’t want to be focused on managing your accounts all at the same time. Not only that the tax forms must be filed correctly when you submit to HM Revenue & Customs.
Filing tax returns can be a daunting process for many. We process thousands of tax returns for many individuals every year. We can help you with filing your tax returns easily. Moreover, we can also guide you through the disclosure tax return process if you have any undeclared income.