The Let Property Campaign (LPC) is an initiative launched by HM Revenue & Customs (HMRC) in 2013 to encourage landlords who own and rent out residential property to come forward and disclose any rental income they may have previously undeclared to the tax authorities. The campaign allows landlords to bring their tax affairs up to date and reduce potential penalties for non-compliance.
This article discusses the tax responsibilities of landlords, highlights possible issues, outlines the benefits of the LPC and provides additional factors to keep in mind to help you maximize the benefits of participating in the campaign.
Understanding Your Tax Obligations
Owning and renting out residential property comes with several tax obligations, including income tax and capital gains tax (CGT). Here’s a brief overview of each:
Income Tax
Rental income from a residential property is taxable and must be reported on your annual tax return as part of your total income.
The rental income should be declared as part of your total income for the year, and you may be able to deduct certain expenses associated with renting out the property, such as repairs and maintenance costs, insurance etc. The tax you pay will depend on your total income and tax bracket. To know more about tax rates, check our article on Know Your Tax Rates and Reliefs for 2023/24.
Capital Gains Tax (CGT)
If you sell a residential property that has increased in value since you bought it, you may be subject to CGT on the gain.
Capital Gains Tax is calculated based on the difference between the purchase price and the sale price of the property, minus any allowable expenses such as legal fees and improvement costs.
The amount of CGT you pay will depend on various factors, including the length of time you owned the property, residency status and your tax bracket.
Stamp Duty Land Tax (SDLT)
When you buy a residential property, you may be subject to SDLT, which is a tax on the purchase price of the property.
The amount of SDLT you pay will depend on various factors, including the purchase price of the property and whether you are a first-time buyer.
You can calculate your Stamp Duty Land Tax with our SDLT Calculator.
Non-Resident Landlord Scheme(NRL)
The Non-Resident Landlord (NRL) Scheme is a tax scheme in the UK that applies to landlords who live outside of the UK but receive rental income from properties located in the UK.
Under the NRL Scheme, non-resident landlords are required to register with HM Revenue and Customs (HMRC) and complete an NRL1 form to declare their status for tax purposes.
If the NRL1 form is not completed, the letting agent is required to deduct tax from the rental income at the basic tax rate of 20% on behalf of the non-resident landlord. The NRL Scheme aims to ensure that non-resident landlords pay the correct amount of UK tax on their rental income.
Therefore, tax laws and regulations can be complex and may vary depending on your individual circumstances. Get professional advice from us to ensure that you are complying with all of your tax obligations and maximizing your tax efficiency.
Identifying Potential Issues
Identifying potential issues with past tax returns and rental income can be challenging, but there are some common mistakes that landlords may make that can trigger red flags for the tax authorities.
Here are some tips to help you identify potential issues :
Review your Past Tax Returns
Start by reviewing your past tax returns to ensure that you have accurately reported all your rental income and deductions. Check that you have included all your rental income and claimed all of the deductions to which you are entitled.
Look out for Common Mistakes
Common mistakes that landlords may make include failing to declare all their rental income, claiming inappropriate or excessive deductions, and failing to keep adequate records of rental income and expenses.
Other mistakes can include misunderstanding the tax laws and regulations, failing to consider the rules around furnished holiday lets, and failing to declare rental income if the property is owned jointly with someone else.
Check for Compliance with Tax Laws
Ensure that you are complying with all relevant tax laws and regulations, including those relating to income tax, CGT, SDLT, and NRL. Check that you are paying the correct amount of tax on your rental income and that you have correctly reported any gains or losses when you sell a property.
Keep Accurate Records
It’s essential to keep accurate records of your rental income and expenses, including receipts, invoices, and bank statements. This will help you to identify any potential issues with past tax returns and rental income and ensure that you are complying with all tax laws and regulations going forward.
Seek Professional Advice
If you are unsure about any aspect of your tax affairs or have concerns about potential issues with past tax returns and rental income, seek professional advice from a qualified accountant or tax advisor.
We can provide guidance on how to identify and address any issues and ensure that you are complying with all tax laws and regulations.
Benefits of Let Property Campaign for Landlords
Here are five benefits that landlords can get by participating in the Let Property Campaign:
Reduced Penalties
If you come forward voluntarily under the Let Property Campaign, you may be eligible for lower penalties and reduced interest charges. Penalties can range from 100% at the upper end to 0% at the lower end and can be reduced in cases where landlords have made a genuine mistake or shown a willingness to cooperate.
To know about penalties in more detail, check out our article on Let Property Campaign Penalties: What You Need to Know.
Avoid HMRC Investigations
By disclosing previously undeclared rental income and paying any outstanding taxes, you can avoid paying hefty interest and penalties and also avoid the risk of potential investigation by HMRC for non-compliance with tax laws.
If you have received a nudge letter/informal enquiry and are unsure what to do, check out our article on HMRC Investigation and Tax Enquiries.
Simplified Process
The Let Property Campaign provides a straightforward process for landlords to disclose their rental income and pay any outstanding tax, interest, and penalties. This can save time and reduce the stress associated with dealing with the tax authorities.
Peace of Mind
The Let Property Campaign allows to update your tax affairs and comply with tax laws. Therefore, you can have peace of mind knowing that you are not at risk of legal action or significant penalties in the future.
Improved Financial Situation
By regularising your tax affairs and paying any outstanding tax, you can improve your financial situation and avoid the risk of accumulating additional tax debts, which can have a negative impact on your credit rating.
Making a Disclosure Under Let Property Campaign
Making a disclosure through the Let Property Campaign involves several steps, including calculating and paying any outstanding tax, interest, and penalties.
Here’s an overview of the process:
Step 1: Notify HMRC
The first step is to notify HMRC that you want to make a disclosure through the Let Property Campaign.
Let us assist you in taking the first step and simplifying the process with our convenient LPC assessment form.
Step 2: Calculate the Tax Owned
Next, you’ll need to calculate the amount of tax owed on any rental income that you haven’t declared. You can do this by reviewing your rental income and expenses for the relevant tax years. You can use our Landlord Income Tax Calculator to work out the amount of tax owed.
Step 3: Make a Formal Disclosure
Once you have calculated the tax owed, you’ll need to make a formal disclosure to HMRC. This involves completing a disclosure form and providing details of the rental income that you haven’t declared.
Step 4: Pay Any Tax Owed
You’ll need to pay any outstanding tax, interest, and penalties owed as part of the disclosure process. The amount you owe will depend on the amount of rental income you haven’t declared and how long it has been outstanding.
Other Considerations
When taking advantage of the Let Property Campaign, there are several additional considerations that you may want to keep in mind. These include:
Consulting with a Tax Professional
As mentioned earlier, the Let Property Campaign can be complex, and the amount of tax owed can be significant.
Therefore, it’s important to consult with a qualified tax professional, such as an accountant or tax advisor, to ensure that you are complying with all tax laws and regulations and paying the correct amount of tax.
Exploring other Tax Reliefs
There are several tax reliefs that may be available to you as a landlord, such as capital allowances for fixtures and fittings, repairs and maintenance expenses, and mortgage interest relief. Make sure to explore all the tax reliefs available to you, as they may help to reduce your tax bill.
Reviewing your Property Portfolio
While making a disclosure through the Let Property Campaign, it may be a good time to review your property portfolio to ensure that it is structured in the most tax-efficient way.
Consider consulting with a tax professional to explore different ownership structures, such as owning the properties through a limited company, to help minimize your tax liabilities.
How Can We Help
Are you a landlord seeking to declare your rental income through the Let Property Campaign?
Partnering with us means not only achieving a seamless resolution of your tax affairs but also benefiting from reduced penalties and interest charges. In fact, some of our clients have even avoided penalties altogether.
Contact us today to learn more about our Let Property Campaign service.
We are dedicated to solve your queries.
Contact us for assistance at any stage of your journey.
