Over the last few years, renting out bricks and mortar has become a very sound investment resulting in sky-rocketed housing prices and rents.
A very common question asked is how HM Revenue & Customs (HMRC) will do rental income disclosure. Our tax experts answer this query, and show you how rental income disclosure is possible.
How will HMRC know about your rental income?
HMRC uses several techniques to find undisclosed rental income.
HM Land Registry
HM Land Registry shares their data with HMRC. HM Land Registry possesses a record of all land and properties sold in England & Wales since 1993.
The following information is held by HM Land Registry:
Flood risk indicator,
Title register whether is leasehold or freehold,
The value paid for the land,
Existing Registered Owner,
Information of any mortgage including the full name and address of the mortgage lender and if the mortgage has been paid off,
A plan of the land including rights of way.
Also, if you own multiple properties and have not informed HMRC as to which one of these multiple properties will be your ‘main residence’ for the purpose of PRR (Private Residence Relief), it will raise a red flag provided that you have not disclosed rental income from these multiple properties.
Stamp duty land tax
You pay Stamp Duty Land Tax (SDLT) when you purchase a rental property (with value over a certain threshold) either in England or Northern Ireland; Scotland and Wales have their own substitute to Stamp Duty Land tax.
HMRC can extract the following information from the SDLT:
The purchase price,
Address of the property,
How much SDLT was payable when the property was purchased.
SDLT operates under the umbrella of HMRC. So, if you purchase multiple properties, it will raise a red flag as it is very unlikely that you use all properties as your main residence. All HMRC needs to do is to check SDLT records to establish multiple ownership of property.
Electoral register
Electoral register shows data of registered voters with registration being linked by authorities through the address that voters live in. Those individuals who possess 2 homes have to be registered twice.
Your registration in the electoral register is carried out via your National Insurance number. Therefore, it is quite easy for HMRC to find out about your property (ies) via the electoral register.
Estate agents
Several landlords seek the services of estate agents to manage their property (ies). To run an estate agency business, it is mandatory to get it registered with HMRC.
HMRC considers estate agents to be an “ideal source” to spot suspicious activity as the latter act as facilitators in the sale/purchase of properties and have contacts with both the buyer and the seller.
HMRC binds estate agents to perform a check on their client’s financial background that includes evidence of income, identity, previous addresses, among several others. Failures to do result in hefty fines. So, if HMRC senses malicious activity, they will extract all this information from estate agents.
Security deposit
It is a common practice that landlords take security deposits from tenants; the former do so to seek protection against any potential damages to the property or rent arrears.
If the contract between a landlord and tenant is shorthand tendency (which most of the contracts are in England and Wales), then the landlord is legally bound to place the security deposit in a government-rated tenancy scheme.
As HM Revenue & Customs have access to these schemes, they can extract information, if need be, to determine if agreement has been made.
Informants
If any informant informs HMRC about your rental income, the latter will launch an immediate probe especially if any evidence with such information is attached.
The informant can be anyone: your spouse, neighbour or ex-partner.
What do our tax experts suggest?
As per HMRC, there are as many landlords in the UK who either do not disclose their rental income or under-declare it to evade taxes. This type of tax evasion inflicts an annual loss of £500 million on UK national exchequer.
HMRC, as a leading revenue collected body, has tools to trace tax evasion. They also recover unpaid taxes along with the interest, slap penalties and publicly name and shame the culprit.
Therefore, if you have any undeclared property income, you must use HMRC’s Let Property Scheme at the earliest.
We, here at IBISS & CO, can assist you. All you need to do is to drop your contact details for “15-Minute Free Call”.
