Property Tax Problems

Being a landlord is difficult enough, never mind dealing with tax.

We’ve helped many landlords who have misunderstood their obligations in relation to tax, for example inheriting a property and not realising the need to declare the income if they rent it out. In those circumstances, we can help with a HMRC disclosure and ensure that all expenses that can be claimed are considered. HMRC has been sending ‘nudge letters’ for a long time now to those it has identified as owning a second property which has made many people suddenly realise that they have past errors to rectify. Our team can help you with this.

There can also be issues with capital gains tax, especially if you’ve lived in a property before renting it out, the relief rules can be difficult to navigate and misunderstood. We’ve helped many clients correct past mistakes in this area.

Sometimes HMRC opens enquiries into property income, in the belief that something has been missed or has gone wrong. In those circumstances, we’ve helped clients to defend the enquiry and bring the matter to a conclusion.

Recently, there have been a number of property incorporation arrangements that have come under scrutiny. These arrangements typically look to avoid section 24 interest relief restrictions. Some of these arrangements may work, others may have caused unforeseen issues, or been ineffective. We’ve helped clients in those circumstances to assess whether they have a problem and if so, we help to put it right.

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Property Income Enquiry - How can we help?

Our team includes ex-HMRC tax inspectors, with a depth of experience in dealing with tax investigations, tax problems, tax enquiries, and voluntary disclosures. It’s what we do.

If HMRC has opened an enquiry into the rental income part of your Tax Return, we can help you respond and defend any allegation of errors that HMRC may make. We will ensure HMRC only requests information and documents that they are entitled to and will respond promptly to HMRC. As part of our review, we will also ensure that you have claimed all of the expenses and reliefs that you are entitled to.

Where additional tax is found to be due, we will make certain that you pay the minimum penalties applicable.

We have further details on tax enquiries on our dedicated page.

Income Disclosure - How can we help?

inTAX advisors include ex-HMRC tax inspectors, with many years’ experience of dealing with tax investigations, tax problems, tax enquiries, and voluntary disclosures. It’s what we do.

If you have a disclosure to make, we can help you through the process and ensure that you pay the right amount of tax, making sure that we look at all expenses and reliefs that you are able to claim. We have more details about let property disclosures on our dedicated page.

If you have a more serious problem to disclose, or if there has been a fraud, it may be that Code of Practice 9 (or “COP9”) is more appropriate.

Income Disclosure - How can we help?

Incorporation Schemes - How can we help?

HMRC is currently taking an interest in the use of corporate and hybrid LLP structures. HMRC considers that the use of some of these structures form part of a tax avoidance arrangement and, in HMRC’s opinion, they do not work.

If you believe you have entered into one of these arrangements, we can carry out a full analysis of the underlying documents and transactions to assess whether there is a risk that additional tax may be due. If there are problems, we will consider the options available to resolve any issues arising and minimise any tax exposure.

HMRC has published ‘Spotlight 63’ entitled ‘Property business arrangements involving hybrid partnerships’. This article highlights HMRC’s concerns specifically relating to arrangements using hybrid LLP’s which include a corporate partner. We are aware of other mass marketed arrangements and HMRC is likely to be looking at those in the future.

Please see our article on Landlord Incorporation Schemes for further details.

HMRC nudge letters - How can we help?

HMRC issues ‘nudge letters’ where they believe you are a property landlord and suspect that you have not declared the correct amount of rental income. These letters should not be ignored as they are only issued where HMRC holds information which suggests that there are irregularities in your tax affairs.

If you have received a ‘nudge letter’, we can review your property income and offer the appropriate response, with a view to minimising any tax, interest and penalties, if there is any error to be corrected.

HMRC nudge letters - How can we help?

Property Tax - What you need to know

Can HMRC find out about my rental income?

HMRC receives information from a number of sources, in respect of rental properties. The sources include local authorities, letting agents, banks and mortgage lenders and third parties (which includes tip-offs from the general public).

How many years can HMRC go back to look at my rental income?

The number of years depends on the reason why the rental income was not declared and whether the non-disclosure was deliberate or non-deliberate. For example, for non-deliberate mistakes, the number of years may be restricted to four years. Conversely, where you deliberately fail to declare your rental income, HMRC can pursue you for underpaid taxes for up to 20 years.

If I sell a rental property do I have to pay tax?

If you sell a second property, then the starting position is that any profit you make over the buying prices will be subject to capital gains tax. This must be reported and paid. However, there are some reliefs that may be available and we can help you to consider these.

Will I be charged a penalty if I haven’t told HMRC about my rental income?

If there is no additional tax to pay in respect of the letting income, there will be no penalty to pay. However, if there is no reasonable excuse as to why HMRC was not told about the rental income, HMRC can charge you a late notification penalty. Although there is no legal definition of reasonable excuse, this would need to be considered and the appropriate representations put to HMRC.

How much rent can I receive before declaring it?

If your total rental income (before expenses) in 2023/24 is less than or equal to £1,000 there is no need to disclose this to HMRC and there is no tax to pay.

Can I let someone live in my house rent free?

If you own a rental property and you let it to a relative (or friend) they can live in the property rent free. However it is important to ensure the property still complies with safety regulations and that the mortgage provider is made aware.

Do I pay tax on renting out part of my main home?

The Rent-a-Room scheme allows you to receive tax free income up to a set limit, if you provide furnished accommodation in your own home. For some people, this regime is more beneficial than declaring the income and claiming expenses.

Are property incorporation schemes illegal?

No, incorporating a property portfolio that you personally own is not illegal and is not necessarily ‘tax avoidance’. There are legitimate ways of doing this, often these are quite complex and usually have fees and tax to pay as part of the process. However, there are some mass marketed arrangements that potentially cause problems, or that HMRC does not like, which may not have the desired tax effect claimed. In those circumstances, HMRC may seek additional tax. If you find yourself in this position, we can help.

How we can assist you with the process

The inTAX team can guide you through any property related enquiry or disclosure, ensuring that you get the best outcome possible in the circumstances. If you find yourself in an arrangement that you may need to exit or change, we can advise you on the best way to achieve that.

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