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HMRC campaigns target individuals with second properties

A new campaign from HMRC targets taxpayers who may have unreported income and capital gains from residential property so it is important to consider whether your tax position is up-to-date.

Last updated: 4 November 2020

HMRC are aware that many people fail to report or disclose any capital gain on the sale of residential properties. These nudge letters are the latest in a long line of campaigns from HMRC to ensure that taxpayers are making the correct disclosures on tax returns.

HMRC will send letters in two batches over the coming months advising people to consider and check their tax position in respect of any residential properties sold. The onus will be on the taxpayer to make sure that if they have disposed of property and not filed a Self-Assessment tax return, to ensure that a disclosure is made if any capital gains tax (CGT) is due. In instances where the taxpayer has already filed a Self-Assessment tax return HMRC will encourage taxpayers to amend their returns where necessary.

There’s still time to amend

The first batch of letters will be sent between 13 October and 30 November 2020 and will specifically refer to disposals that took place in the 2018/19 tax year. The good news is that we are still within the twelve month amendment window, that being by 31 January 2021; which provides an opportunity to amend returns if required. There’s potentially a second batch of letters going out between 1 February and 31 March 2021.

This campaign is targeting people with second properties, as the letters state that while they identify the taxpayer as the owner, they have no record that you have lived in the property. Such properties, once sold will not qualify for Private Residence Relief (PRR) and the disposal must have been reported on your 2018/19 Self-Assessment tax return, which should have been submitted by 31 January 2020.

Where a sale has not previously been reported, penalties could be as high as 100% of the unpaid tax. Making a voluntary disclosure of the disposal could potentially reduce your exposure to these penalties. There may be higher penalties for overseas property disposals that have not been reported.

Although these letters reference the 2018/19 tax year, we’re expecting more of these letters in the future, especially with the changes from 6 April 2020 requiring taxpayers to file a CGT property tax return within thirty days of completion on the sale of UK residential property, followed by a Self-Assessment tax return due at the normal deadline. 

Rental income including Airbnb income

In addition to property sales, HMRC are also writing to people who have second homes to enquire if it is being let and whether they are receiving rental income. This will affect more people, as it will widen the net of people who may not have considered disclosing such income previously. HMRC have also obtained information in relation to letting through Airbnb. 

Our experience is that HMRC are more lenient with people who come forward under these campaigns. There’s less scope for negotiation if HMRC discover a property sale was made and/or that rental profits were not reported. So we encourage you to check and review your position, not just for 2018/19, but for all years to make sure that your tax affairs are up-to-date.

HMRC’s increasingly sophisticated tools

In the last decade, HMRC have been working on a digital initiative that gives them the ability to cross check what a taxpayer reports on their tax return with organisations such as the Land Registry and other government bodies. HMRC have ever more sophisticated tools at their disposal and in the face of this, it is far easier for them to find inaccuracies on a taxpayer’s tax return, even though it may have been a simple omission.

If you receive one of these letters, it is important to not ignore it as it might then result in a formal enquiry into your tax affairs even if your tax affairs are correctly reported.  

About the author

Rume Oshenye

+44 (0)20 7556 1398
oshenyer@buzzacott.co.uk

Last updated: 4 November 2020

HMRC are aware that many people fail to report or disclose any capital gain on the sale of residential properties. These nudge letters are the latest in a long line of campaigns from HMRC to ensure that taxpayers are making the correct disclosures on tax returns.

HMRC will send letters in two batches over the coming months advising people to consider and check their tax position in respect of any residential properties sold. The onus will be on the taxpayer to make sure that if they have disposed of property and not filed a Self-Assessment tax return, to ensure that a disclosure is made if any capital gains tax (CGT) is due. In instances where the taxpayer has already filed a Self-Assessment tax return HMRC will encourage taxpayers to amend their returns where necessary.

There’s still time to amend

The first batch of letters will be sent between 13 October and 30 November 2020 and will specifically refer to disposals that took place in the 2018/19 tax year. The good news is that we are still within the twelve month amendment window, that being by 31 January 2021; which provides an opportunity to amend returns if required. There’s potentially a second batch of letters going out between 1 February and 31 March 2021.

This campaign is targeting people with second properties, as the letters state that while they identify the taxpayer as the owner, they have no record that you have lived in the property. Such properties, once sold will not qualify for Private Residence Relief (PRR) and the disposal must have been reported on your 2018/19 Self-Assessment tax return, which should have been submitted by 31 January 2020.

Where a sale has not previously been reported, penalties could be as high as 100% of the unpaid tax. Making a voluntary disclosure of the disposal could potentially reduce your exposure to these penalties. There may be higher penalties for overseas property disposals that have not been reported.

Although these letters reference the 2018/19 tax year, we’re expecting more of these letters in the future, especially with the changes from 6 April 2020 requiring taxpayers to file a CGT property tax return within thirty days of completion on the sale of UK residential property, followed by a Self-Assessment tax return due at the normal deadline. 

Rental income including Airbnb income

In addition to property sales, HMRC are also writing to people who have second homes to enquire if it is being let and whether they are receiving rental income. This will affect more people, as it will widen the net of people who may not have considered disclosing such income previously. HMRC have also obtained information in relation to letting through Airbnb. 

Our experience is that HMRC are more lenient with people who come forward under these campaigns. There’s less scope for negotiation if HMRC discover a property sale was made and/or that rental profits were not reported. So we encourage you to check and review your position, not just for 2018/19, but for all years to make sure that your tax affairs are up-to-date.

HMRC’s increasingly sophisticated tools

In the last decade, HMRC have been working on a digital initiative that gives them the ability to cross check what a taxpayer reports on their tax return with organisations such as the Land Registry and other government bodies. HMRC have ever more sophisticated tools at their disposal and in the face of this, it is far easier for them to find inaccuracies on a taxpayer’s tax return, even though it may have been a simple omission.

If you receive one of these letters, it is important to not ignore it as it might then result in a formal enquiry into your tax affairs even if your tax affairs are correctly reported.  

Speak to an expert
Speak to an expert

If you do receive a letter or would like to review your tax position, please get in touch with one our tax experts.

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