Let Property Campaign: how landlords can disclose unpaid rental tax

Many landlords find out they should have been declaring rent only after the first letter from HMRC, or after a conversation with an accountant. Perhaps a second property was let for years, a room was rented out, or an inherited flat was let without anyone mentioning tax. The Let Property Campaign is how HMRC lets you put that right on terms set out in advance. This guide covers who can use it, how the process works, how far back HMRC goes, how penalties are worked out, and the mistakes we see most often when landlords work out what they owe.

Who can use the Let Property Campaign?

It is aimed at individual landlords who have not declared some or all of their rental income. That includes a single let, several properties, a room let above the Rent a Room limit, holiday lets, a UK property let while you live, or plan to live, abroad for more than 6 months, and a property you inherited and began letting without realising the income had to be declared. You do not need an HMRC letter to use it. You can come forward on your own.

If you use the campaign, the disclosure must include all other previously undisclosed income or gains, not only the rent. If HMRC has already told you it intends to open an enquiry or compliance check, the campaign is unlikely to be the right route. In that case speak to the officer dealing with it, because a full and early disclosure can still influence the penalty. The campaign covers residential lettings in the UK or abroad. An offshore element carries higher penalty maximums, and the disclosure form has an offshore option, so we confirm how your facts should be presented before anything is submitted.

The process: notify first, then disclose

1. Notify HMRC that you intend to disclose, as HMRC's guide sets out. You do not need figures at this stage.
2. Receive your references. HMRC writes with a disclosure reference number and a payment reference number.
3. Calculate and disclose. You normally have 90 days from HMRC's acknowledgement to work out the rental income, allowable expenses, tax, interest and penalty for each year, and to submit the disclosure.
4. Pay. Payment is due by the same deadline. If you cannot pay in full, agree a time-to-pay arrangement with HMRC before you submit.

An incomplete or inaccurate disclosure can be rejected or looked at further, so the 90 days are best spent on the numbers. As with any disclosure, the hard work is before you notify: pull together tenancy agreements, bank statements, mortgage statements and expense records for every property first, then start the clock.

Some points from HMRC's own guide. Each person makes their own disclosure, so a couple makes two. Income for the current tax year and the year before it goes on your tax return, not in the disclosure, and any return HMRC has already issued for 2022 to 2023 onwards must be completed rather than disclosed. Your disclosure includes an offer for the full amount owed, and once HMRC accepts it, the offer and the acceptance form a legally binding contract.

How far back does HMRC go?

It depends on your behaviour, not on a single fixed number of years, and you are asked to decide which category applies as part of the disclosure. Broadly:

• Reasonable care taken, but tax was still underpaid: up to 4 years.
• Careless (reasonable care not taken): up to 6 years.
• Deliberate, or failure to notify HMRC of the income without a reasonable excuse: up to 20 years.

For overseas rental income, the limit can be as long as 12 years where an offshore matter is involved and the behaviour is not deliberate. The label matters. Someone who was never in Self Assessment and never told HMRC they were chargeable has failed to notify. Someone who filed returns but left the rent off them has submitted inaccurate returns. These are different failures with their own time limits and penalty rules, and an incorrect self-assessment of your own behaviour is itself a reason for HMRC to reject a disclosure.

How penalties work

Penalties follow the same behaviour-based structure. For UK rental income they can reach up to 100% of the tax owed, and up to 200% where an offshore element is involved. What you actually pay depends on your behaviour category and on how fully and promptly you disclose. If you took reasonable care and still underpaid, HMRC's guidance says no penalty is charged. Interest is charged on the tax from when each amount was originally due, worked out daily. If you took a long time to come forward (over three years is usually treated as significant), HMRC is unlikely to reduce the penalty by more than 10 percentage points above the minimum. HMRC does not publish the details of landlords who notify, make a full and accurate disclosure with payment before the deadline, and co-operate.

Rent is not profit, and mortgage interest is not deducted

The first common mistake is treating the rent received as the amount taxed. You are taxed on rental profit: rent received less the allowable running costs of the letting.

The second catches landlords with mortgages. Mortgage interest and other finance costs are not deducted from rental income. Instead you receive a tax reduction worked out at the basic rate of Income Tax (HMRC gives the rate as 20%), after tax has been worked out on the full rental profit. The reduction is limited to the lowest of your finance costs, your property profits and your income above the personal allowance, and any excess is carried forward. The restriction was phased in: a quarter of finance costs in 2017/18, half in 2018/19, three quarters in 2019/20 and all of them from 2020/21. This means the tax bill can be higher than a simple "rent minus mortgage interest" sum suggests, which is why getting the calculation right matters in a disclosure.

An example: a second property let for six years

A landlord has let a second flat for six years and never declared the rent, wrongly believing it fell under a tax-free limit. She is an individual, the flat is residential and no enquiry has been opened, so the campaign fits. She was already in Self Assessment for her job and filed returns each year, so leaving the rent off them points to inaccurate returns rather than a failure to notify. Whether the error was careless or deliberate is a separate question again, and it drives both the years to disclose and the penalty range.

None of that follows automatically from the fact that rent was omitted, so she takes advice before categorising her behaviour. She then notifies HMRC, receives her references, and uses the 90 days to gather six years of bank statements and tenancy agreements. With her adviser she works out the profit, the finance cost reduction, interest and any penalty for each year, and submits the disclosure and payment together.

What happens if you do nothing?

HMRC continues to look for new information, including from overseas tax authorities, and uses it to identify landlords who have not declared letting income. If it later finds that a disclosure was incorrect, it can look at your affairs again, with higher penalties than the campaign offers. If HMRC opens a compliance check or enquiry before you come forward, you lose the more favourable terms and the lower penalty range available to someone who discloses voluntarily. In the more serious cases HMRC can consider a criminal investigation rather than a civil one. Coming forward promptly and completely is what keeps the lower end of the range available.

How we help

We talk through your position in confidence, work out your behaviour category and the years involved, rebuild the rental history, calculate the tax, interest and any penalty, and make the disclosure. Nothing is sent to HMRC until you decide. See our Let Property Campaign service. If your income is overseas, see our guide to the Worldwide Disclosure Facility. Fees are agreed by consultation.