How can HMRC find out about my rental income?
It’s time consuming running a property rental business. There are tenants to find, agents fees to manage, repairs to organise and insurance to negotiate on top of the book-keeping.
Depending on the size of your property business - annual accounts may need to be prepared and you will need to complete a Tax Return. This will involve capturing all your property income and determining which expenditure can be deducted, for tax purposes.
It could be very easy to forget your obligations to the HMRC - especially as we’re now preparing Tax Returns which capture income and expenses from 6 April 2020 onwards – that’s over 14 months ago.
HMRC have ways and means to track down property investors who are not disclosing their rental income.
- Records held at Land Registry can be used to find out who owns land and property.
- The Stamp Duty Land Tax office will know when ‘additional’ property liable to the 3% surcharge was purchased
- If you use an agent to manage your property - they have annual reporting requirements to HMRC.
- If you receive income from residential or commercial properties you own (or own a share in) which exceeds £1,000 annually,
- If you rent rooms in your own home and receive income exceeding £7,500 annually - you are required to report this income to HMRC.
If your property income:
Started after 6 April 2020:
- Contact HMRC to see if they can collect the Income Tax due via your PAYE coding notice – this will only apply if your gross rental income is less than £10,000 and net rental profit (i.e. after tax deductible expenses) is less than £2,500.
- If your gross rental income exceeds £10,000 (or your rental profit exceeds £2,500), you will need to register for Self-Assessment before 5 October 2021 and electronically file your 2021 Tax Return (and settle the Income Tax due) by 31 January 2022.
- If you are employed or receive pension income, sometimes HMRC will collect the Income Tax due on property income via your PAYE code but this will require your 2021 Tax Return to be submitted electronically by 30 December 2021.
Started before 6 April 2020:
- Consider filing a late Tax Return for 2019/20 and/or make use of HMRCs ‘let property campaign’ to report your undisclosed property income to minimise penalties for earlier years.
- In most situations, tax relief for loan interest payable on residential property is now given by reducing your tax liability. In the past, this has been treated as an expense of your business thus possibly reducing your net profit to below the £2,500 threshold.
Contact Nicola Valentine on 01223 810100 - If you are concerned that you may need to file a Tax Return or have received property income, in previous years, and are concerned that HMRC may catch up with you.