Landlords on the defensive, yet again

Published by George Guilherme-Fryer on 11 November 2022

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There are rumours abounding that Jeremy Hunt’s new budget will take another jab at landlords either through higher rates of CGT on disposal of residential property or perhaps by applying higher rates of NICs. 

In the classic one-two fashion, HMRC are taking the opportunity to land a punch too. UK landlords will now be the target of a new ‘nudge letter campaign’ to tackle non-compliance. 

What exactly are nudge letters?

Nudge letters are part of HMRC’s ongoing ‘upstream compliance’ effort; a method by which they encourage taxpayers to proactively correct their affairs without the need for direct HMRC intervention such as an enquiry.

These nudge letters are widely targeted at individuals or businesses based on information received, primarily from other governmental departments, banks or, in this case, the tenancy deposit scheme.

Whilst the format of each letter is slightly different, there are some common themes found in all nudge letters such as a statement that HMRC has received relevant information. It will also suggest the taxpayer reviews their tax position, and it will always include a suspiciously simple certificate of tax position to be completed and returned.

What are these latest letters targeting? 

From 1st June 2019, landlords in England are limited to 5 weeks’ deposit for new and renewed tenancies with rent equivalent under £50,000 per annum, or up to 6 weeks if the annual rent is £50,000 or more. As most landlords are expected to take the maximum deposit, it is not a difficult calculation for HMRC to calculate the expected rental income which should be included in a tax return.

For example, if the deposit held with the tenancy deposit scheme is £1,000 (5 weeks of £200) then HMRC will assume an approximate rental income of £10,400 annually (£200 per week).

What should I do if I receive a nudge letter?

In the immortal words of ‘The Hitchhikers Guide to the Galaxy’, Don’t Panic!

HMRC’s nudge letters do not take account of many factors, such as vacant periods or other reductions in rent. These letters are sent far and wide so there is a good chance that you may not have anything to respond with. Even if you do, it may not be as worrying as you think. Often there is a simple explanation or nothing leading to any additional tax to pay. Many taxpayers may just have forgotten something when completing their return.

Before responding in any format, it is important to undertake a full review of your tax position to identify if any disclosure is required and to plan any approach to HMRC. A response will be needed if you have something to disclose, as ignoring the letter may lead to investigation and potentially criminal prosecution.

Expert advice is always recommended when dealing with any type of HMRC intervention. To fully support you, Kreston Reeves has a dedicated team of Tax Disputes and Risk Management specialists who have significant experience in handling precisely this type of HMRC intervention. For more information, please get in touch by visiting our contact us page.

Using content from this article, The Sunday Times has shared their thoughts on the current situation for landlords and the potential impact of future government budget announcements. You can read The Sunday Times article here.

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