Jennifer Adams considers whether the ‘Let property campaign’ has been a success for HMRC and asks whether it will still be around ten years from now.
Think back to 2013; David Cameron was still Prime Minister, HMV had collapsed, Andy Murray won Wimbledon, and HMRC announced the start of the let property campaign (LPC).
Ten years on, and the LPC is the only one of the original 18 tax campaigns remaining. Introduced in 2007, each tax campaign targeted a specific taxpayer group or type of taxable activity and were designed to give taxpayers the opportunity to declare income not previously declared, bringing their tax affairs up to date on advantageous terms – no questions asked.
The campaigns were intended to be ‘one-off’ lasting around 18 months. However, HMRC obviously believes the LPC has further to go, and it remains in place a decade later.
What is the LPC?
The LPC offers a streamlined process to fast-track cases where a tax loss arises from the let property and applies where the income is received from residential (i.e., not commercial) property.
Note that property held in a company or trust cannot use the LPC. It should also be noted that HMRC’s Code of Practice 9 disclosure route is the only tax disclosure facility offering immunity from criminal prosecution when a full disclosure is made.
The LPC practicalities
Notification of the intention to declare is by completion online using HMRC’s digital disclosure service. Any annual gross rental income higher than the property allowance threshold of £1,000 must be declared.
Following submission, HMRC issues a disclosure notice and, most importantly, a payment reference. The landlord then has 90 days to make the submission, detailing the total undeclared income and any related expenses (although HMRC will generally accept a later submission if an extension is requested). The percentage penalty will depend entirely on the lateness of the disclosure and upon the landlord’s answer to the question: ‘Please enter the reason(s) for the penalty rate(s) you have chosen’, meaning that the onus is on the landlord to decide whether the reason was an error despite taking reasonable care, whether the non-declaration was careless, or whether it was deliberate.
How far back to disclose depends on whether a return has been submitted previously. If no returns have been submitted, the declaration needs to be from the first year of receiving rental income, up to a maximum of 20 years. If a return has been submitted previously but, despite being careful, an error was made, HMRC will only seek to go back a maximum of four years. Careless completion of a return requires a declaration going back a maximum of six years. A condition of being allowed to participate in the campaign is that all income previously unreported to HMRC must be made, in addition to any missing letting income, and that current and future returns are submitted timely. For 2008/09 or earlier years, the 20-year rule will only apply where an individual has failed to notify chargeability and the loss of tax was due to the individual’s negligent conduct (or the negligent conduct of someone acting on their behalf).
Penalties and interest
The extent of penalties imposed is determined by several factors, such as the nature and seriousness of the non-compliance, the level of cooperation with HMRC, and whether the disclosure was prompted (e.g., following the issue of a ‘nudge ‘ letter) or unprompted. The benefit of disclosing under MPC is lower penalties compared with penalties levied if HMRC initiates a compliance check or inquiry. Although there are three lower rates of penalties, the application form does not allow the application of the two lower percentage penalties if the declaration relates to a year more than two years previously; it defaults to 20%. However, in comparison, penalties charged under a formal enquiry or compliance check start at 30%, rising to a maximum of 100%; so if possible, advantage should be taken of the LPC.
Interest is calculated from the date the tax would have normally been paid to the payment date. Five to 19-year calculators are supplied online on HMRC’s website to enable the interest figure to be calculated accurately.
Latest targets
The lack of ‘campaigns’ is possibly because HMRC has more data collection sources available, enabling HMRC’s ‘Connect’ computer system to be more accurate in cross-checking information declared. In addition, since 2011, HMRC has acquired powers to require details from organisations about third parties, including letting agents, or anyone providing a similar service, including internet-based letting services. Such information provides the basis for the issue of ‘nudge’ letters (termed ‘One to many’ letters), an inexpensive way for HMRC to follow up without opening a formal tax investigation.
As such, these nudge letters are not speculative. To date, HMRC has ‘nudged’ taxpayers whom they suspect have paid insufficient tax relating to an extensive list of matters. The ones relevant to landlords so far have been annual tax on enveloped dwellings and capital gains tax on property disposals. One of HMRC’s latest round of ‘nudge letters’ targeted income from short-term property letting, particularly via sites such as Airbnb. Following legislation introduced in Finance Act 2021, Airbnb etc, has been compelled to share income details of all UK hosts since the 2017/18 financial year. Since February 2024 such data requests have enabled HMRC to issue hundreds of ‘nudge letters’ to hosts suspected of not paying tax on their Airbnb income. HMRC intends to review data going back as far as 2017/18. HMRC is reported to also have its sights on those advertising properties on other online rental platforms such as Booking.com and Vrbo.
In most cases, the LPC will be appropriate for these landlords, although for the most serious cases (e.g., where the tax loss is particularly high, or the undisclosed income spans multiple years, or arises from multiple properties), other methods of disclosure can be used.
Has the LPC been a success?
When the campaign launched in 2013, HMRC estimated that up to 1.5 million landlords had underpaid or failed to pay up to £500m in tax between 2009 and 2010. Since then, there have been 87,277 voluntary disclosures (approximately 5% of the landlords targeted initially), producing a total tax yield of £236,290,411 – just under 50% of the original target.
Whether or not the LPC could be said to be a success in terms of the amount collected, it successfully confirmed HMRC’s belief that the ‘tax take’ was much less than it would otherwise have been had the campaign not been in place.
The future of the LPC
In the UK, whenever a property is sold it is registered at the Land Registry. Therefore, it is straightforward for HMRC’s ‘Connect’ computer system to check the names of owners against the names of council taxpayers or those on the electoral roll and establish whether the property pages of a tax return have been completed correctly. Therefore, at some time in the ownership period of the rental property, any landlord who has not declared will probably be caught, if not whilst renting, when the property is sold.
Recent tax changes have contributed to an increase in the number of landlords exiting the market, such that over the last few years there has been an increase in disclosures, which would have required capital gains tax reporting, and possibly having to review their income tax position.
The 2021 English Private Landlord reported that ‘43% of landlords owned one rental property, representing 20% of tenancies; a further 39% owned between two and four rental properties, representing 31% of tenancies; the remaining 18% of landlords owned five or more properties, representing almost half (48%) of tenancies’. The fact that just 5% of the landlords originally targeted have disclosed means HMRC has more to find, particularly amongst the smaller landlords.
Practical tip
Given the recent increase in HMRC’s use of nudge letters, it may be safe to assume that they produce results. Such letters, in combination with the ease of declaring via the LPC, must make this a cost-effective method of tracing and collecting tax from non-compliant landlords. Therefore, the LPC probably has a long way to go and could remain in place for some time yet.
