HMRC orders soaring numbers of landlords to pay millions of pounds in fines

Economy
By Liam

HMRC orders huge number of renters to pay millions of pounds in fines and back taxes – with a target increase of 83% in a year

  • Property investors are caught out by a renewed tax burden from the HMRC
  • Last year, nearly 5,500 landlords were caught, with £33 million recovered

By Sam Barker This is money

published: | Updated:

A growing number of landlords are caught and fined for underpaying income tax – while HM Revenue & Customs got 83 per cent more of it last year.

The IRS found that 5,429 landlords did not declare enough income tax in 2022/23, an increase of 83 percent in one year.

HMRC has recovered £33m in tax from these landlords – £6,078 each on average – 73 per cent more than £19.3m in 2021/22.

Meanwhile, HMRC fined landlords £2 million last tax year, a 53 per cent increase on £1.3 million the year before, according to a freedom of information request from This is Money.

Many will have deliberately tried to evade taxes, while others will fall victim to their own poor bookkeeping.

The taxman is coming: HMRC is once again funneling funds to catch landlords

The reason for the increased HMRC scrutiny of taxes is that the IRS turned its attention away from landlords during the worst of the Covid-19 pandemic in 2020 and 2021.

Instead, HMRC poured resources into ongoing programs such as the Job Retention Scheme, Income Support Scheme and Eat Out To Help Out.

But as the pandemic eased in 2022/23, landlords were once again in the steely gaze of the taxpayer.

Ben Beadle, CEO of the National Residential Landlords Association, said: ‘Landlords need to consider the tax implications when receiving rental income. In many cases, they will have to file their own tax returns, so we strongly recommend that they seek professional tax advice if they have any doubts.

“HMRC does not accept ignorance as an excuse for non-payment or late payment of taxes, so it is crucial that landlords ensure they are fully aware of their tax obligations.”

HMRC targets landlords through its ‘Let Property’ campaign, launched in September 2013

The campaign was designed to target the 1.5 million landlords HMRC believed were underpaying £500m a year in tax on rental income.

It was initially intended for 18 months, but has instead lasted 10 years.

Under the scheme, HMRC can recover up to 20 years of back taxes, fine landlords up to 100 percent of all outstanding taxes, or 200 percent for cash held offshore, and face prosecution.

But if a landlord has made a real mistake on their tax return, HMRC will reclaim up to six years’ worth of underpaid tax and will only issue smaller fines, if any.

An HMRC spokesperson said: ‘The Let Property Campaign is an opportunity for landlords who owe tax from renting out properties, in the UK or abroad, to keep up to date with their tax affairs in a simple, straightforward way and to benefit from the best possible conditions.

“During the Covid-19 pandemic, resources were shifted to support the wider government’s priorities at the time, resulting in a temporary reduction in disclosures.”

What must landlords declare when completing a tax return?

Landlords must pay tax on the profit they make from renting out property.

The profit is the amount left over after they add up their rental income and subtract the expenses or fees they are entitled to.

If they rent out more than one property, the profits and losses of those properties are added together to arrive at a single profit or loss figure for their real estate company.

Allowable costs include rental agent fees, home insurance, property maintenance and repairs, and utility bills.

With furnished rental properties, landlords may also be entitled to a ‘wear and tear’ compensation.

The first £1,000 of property rental income is also tax free.

Landlords who sell a property in a given tax year may also owe capital gains tax if the property has increased in value during their ownership.

They should have already reported this using a ‘Gains on UK Property Account’ and paid any tax due within 60 days of the sale.

But even if they did this correctly, they still have to disclose the profit and tax they paid on your full tax return for the year – so don’t miss out.

With real estate, it is worth noting that the tax rate is higher than with other investments.

Base rate taxpayers are charged 18 percent of each gain, and higher rate taxpayers are charged 28 percent of each gain.

At the moment, however, taxpayers are only required to pay capital gains tax if the profit they make exceeds their tax-free allowance of £12,300 in a single tax year.

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