Do you have under-declared property income

HMRC have a long running campaign to encourage property owners who receive rental income from property, and who have not declared this income on their tax return, to get their tax affairs in order. The following example, reproduced from HMRC’s website, shows how this can occur.

 Beena age 23

 

• Moved to Leeds to work in finance sector and purchased a 2 bedroomed flat to live in when she got there.

• She started a relationship and after 18 months moved in with her partner.

• Rather than sell her flat, which she saw as a good investment, she decided to rent it out. The rental income just covered the mortgage payments.

• She makes no SA returns and her only dealing with HMRC is through the payroll of the company that employs her.

• Beena’s total mortgage payments are circa £8000 per annum and the rent she receives is £8,400. She also has agent fees and maintenance costs to pay.

• Beena has not realised that only the interest payments on her mortgage are an allowable expense for tax purposes. The £3000 she paid last year to reduce the capital owed cannot be claimed. Therefore, she should have told HMRC about her rental income and paid tax on around £2,500 profit (allowing for other expenses related to maintenance, etc).

• If the profit was below £2,500 HMRC could collect the tax due on this through amending Beena’s PAYE code number without the need to complete a tax return.

 

If you own property that you let out and have not considered the tax consequences, please call to discuss your options. Making a voluntary disclosure to HMRC may save you money as HMRC will likely reduce any penalties payable.

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