Orange & Gold Blog

Advice for buy-to-let landlords

HMRC is increasing its clamp-down on what it believes is the many thousands of landlords that do not correctly declare or account for their rental income for tax purposes.

They will be writing to some 40,000 landlords over the next few months, requesting them bring their affairs up to date, or risk investigation and potential sanctions.

If you own and rent out a residential property or holiday home, the rental income you receive, less certain allowable costs, is a taxable part of your annual income and as such may create a personal income tax liability. This should all be declared on your annual self-assessment income tax return. If the property is sold (and it is not your own, main residence) any profit earned on the value of the property compared to what you paid for it will be subject to capital gains tax.

The Revenue believes that tens of thousands of landlords are paying too little or no tax at all, by not declaring this income or inaccurately completing tax returns and is ramping up its pursuit of the estimated £500m in underpaid tax - 5,000 landlords have already received the letters, which give the landlord 30 days to respond. Those who do not respond and are subsequently found to have not declared or under-declared taxable income, may be dealt with more harshly, facing penalties and even criminal investigation.

HMRC are using several sources of external data to cross-check and identify potential sources of unpaid tax relating to rental property - including the electoral roll, the Land Registry, scrutinising housing benefit payments that go direct to landlords and, more recently, writing to lettings agents to request lists of everyone on their books.  They have even turned to monitoring social media as part of an ever more serious effort to find approximately one million landlords that they believe are not properly registered with HMRC.

Typical costs that can be claimed against rental income are: agents fees, mortgage interest (but not the capital element of repayments), buildings insurance, service charges, ground rent, cleaning, council tax or utilities where these are borne by the landlord directly (i.e. not paid by the tenant) and repairs and maintenance to the fixtures of the property. Additionally, for furnished properties, a wear and tear allowance equal to 10% of the 'net rent' can be claimed - where 'net rent' is the rent itself less any utilities or council tax borne directly by the landlord themselves (as opposed to the tenant). If this is claimed, replacement of individual furnishings or items of equipment can not be claimed as well.

HMRC's Let Property campaign website  can provide more information on how to bring your affairs up to date and provides further tax advice.