Here we pick our most relevant announcements from the Chancellor of the Exchequer’s 2024 Autumn Budget...
HMRC has looked closely into tax compliance among UK property investors and UK landlords since 2013 via the LPC or Let Property Campaign. As a result, HMRC has managed to claw back around £250,000,000 for the government, and around one and a half million landlords have been found to be underpaying their taxes. Landlords of residential properties are encouraged proactively to stay on top of their tax obligations since otherwise they could face severe consequences.
The LPC – What Is It?
The Let Property Campaign or LPC is a disclosure initiative implemented by HMRC to persuade landlords of residential properties to declare rental income accurately and to put their tax affairs in order whether they let out property abroad or in the UK. This campaign enables landlords to disclose their rental income in advance of HMRC developing suspicions of them being non-compliant and therefore undertaking a tax investigation. This type of voluntary disclosure represents the best way of mitigating the penalties that HMRC would impose if they discovered discrepancies during a tax compliance check.
If you have rental profits that are undeclared, you should immediately notify HMRC to prove your action was not deliberate. This will allow you to have the penalties levied reduced. HMRC has several sources it can use to determine whether you are investing in property or are a landlord of residential property, so if you do not disclose, you are very likely to eventually be caught.
Who Is The LPC For?
The LPC is designed for:
- People who are renting out single properties.
- People who are renting out multiple properties.
- Specialist landlords.
- People who rent out rooms in their primary dwelling for over the limit of the Rent a Room Scheme.
- People who live abroad and rent out a UK-based property.
- People who live in the UK but rent out a residential property overseas.
- People who have a holiday lettings property that they also use themselves.
If the amount of gross income you receive each year through rentals exceeds the £1000 property allowance threshold you must inform HMRC. If the amount is more than £2500, you must register yourself for tax self-assessment.
Who Is The LPC Not For?
You cannot participate in the LPC if you are renting out any property that is commercial or non-residential, for example, garages, lock ups, or shops. Companies or trusts that let out properties within the UK cannot use the LPC either.
How Long Do LPC Disclosures Go Back?
The time limit you have to disclose for your income from residential property depends on why the declaration was not made originally or why you failed to pay the correct amount of taxation. It will also depend on whether the omission was accidental or deliberate. A maximum of 20 years for paying tax responsibilities to HMRC exists but if your track record is good and your underpayment was not deliberate, an LPC disclosure will potentially go back four years. If you made a careless mistake, you could owe 6 years’ worth of underpaid tax. But if the underpayment or under-reporting was deliberate you could end up going back 20 years.
How To Participate In The LPC
Whether you have received a prompt letter from HMRC, or whether you simply want to rectify your mistakes, you still follow the same process to participate in the LPC.
First, you must register for the scheme. This will signify that you are letting HMRC know you are going to disclose your lettings income voluntarily and will sort your tax affairs out. Within a 15-day period, you will receive a response from HMRC acknowledging receipt of the registration and attaching your DRN (Disclosure Reference Number).
Once you receive this, you have a 90-day period within which to disclose your undeclared income via the disclosure form. You must include all undisclosed income along with the owed amount of tax, penalties and extra tax interest owed. You should make sure you only submit the disclosure after having checked it scrupulously for completeness and accuracy.
You will need to calculate the amount that you owe to HMRC and to do this, it is always wise to seek advice from professionals. Once you have calculated the correct sum, you should then make a formal offer within your disclosure form of the amount that you think needs to be paid. You can settle the payment at the same time, either on the day of completing the disclosure in a single lump sum or, alternatively, you can set up a payment plan to pay over a more extended period.
When HMRC receives your offer, they can either reject it or accept it. Sometimes, they will request more information that you should provide rapidly so the process can move forward.
What Penalties Are Levied?
An additional tax penalty can range from serious to mild, depending on what your circumstances are. In some cases, there may be nothing to pay, particularly if the taxpayer’s action was not deliberate, however in a more serious case where tax evasion is suspected, a larger sum may be levied, and in the worst case scenario, criminal prosecution proceedings may be launched.
Penalty percentages can range between 0% and 30%. If you did not register for self-assessment but can be shown to not be intentionally concealing the rental information of your property from HMRC, you may find your penalty is around 10%. If you have been found to intentionally hide your rental income or deliberately mislead HMRC, you risk a much higher penalty, which could be as much as 35%.
It is possible to reduce the amount of penalties you owe by working with a team of tax investigation specialists who have an in-depth understanding and knowledge of the Let Property Campaign. As experts in the field, they can ensure that you manage the process correctly and can help you mitigate any penalties levied to as low an amount as possible. They will also ensure that your disclosure is complete and accurate when you submit it.
