Undisclosed property income has long been on HMRC’s radar and its data sharing system has made it easier to pursue those taxpayers at fault.
Last month, Reuters reported on an investigation into the UK arm of Airbnb, conducted by HMRC, during which Airbnb stated that it would share details of the rental income earned by its hosts in 2017/18 and 2018/19 with the tax authority.
Consequently, those who have earned rental income from letting property out via Airbnb and who have not disclosed this correctly will undoubtedly be targets for tax enquiries.
The data being shared also comes under the ‘discovery’ rules. HMRC can, therefore, delve into data spanning the last 20 years and it will likely take advantage of this freedom.
Declaring undisclosed property income to HMRC
What you must declare will depend upon your set-up; i.e. are you letting a room within your principal residence or a second or third property in its entirety?
If the former, the ‘rent-a-room’ relief allowance means any income up to £7,500 will not generate a tax obligation.
Where the latter is true, however, only £1,000 can be earned before you generate a tax liability. This £1,000 limit is also often referred to as the annual trading allowance.
Any income not covered by either of the aforementioned allowances should be declared. Where this has not already been done in a timely manner, landlords should make every effort to rectify their tax affairs.
If you are already submitting a Self-Assessment Tax Return, we recommend disclosing this income, even where no tax is due. Doing so will reduce mismatches in data and mitigate the risk of an enquiry.
Your circumstances will also dictate how you should make your declaration to HMRC. Where undisclosed property income was earned in the tax year 2018/19, taxpayers can amend the respective tax return until 31 January 2021.
Where the issues arise in earlier years, taxpayers may want to consider making a disclosure under HMRCs ‘Let Property Campaign’ which is available to individuals letting out UK residential property.
Penalties and enforcement action can be minimised if you are voluntarily upfront with HMRC.
Does your property qualify as a Furnished Holiday Let (FHL)?
If your property qualifies as a Furnished Holiday Let (FHL), it will benefit from certain other tax advantages.
For example, furnishing costs can be deducted from your pre-tax profits. Furthermore, when selling, you can claim for certain Capital Gains Tax (CGT) reliefs.
You must meet the following criteria, for your property to be deemed an FHL:
- Be within the European Economic Area (EEA);
- intend to make a profit;
- furnish the property;
- make the property available to rent for 210 days (30 weeks),
- let the property commercially as a holiday property for 105 days (15 weeks); and,
- if occupied by the same party for 31+ days, lettings of this nature must not total more than 155 days.
“Obviously, in 2020 the 105 days let criteria may have been a challenge due to COVID restrictions, so owners need to be vigilant about how they declare any rents that have been achieved, but with many families now opting for a UK-based holiday, a strong trade is expected for FHL and Airbnb operators in 2021” – Carol George
How can George Hay help?
As with any business, tax is a key consideration for anyone operating in the property sector.
Our comprehensive and considered property tax advice, designed to compliantly minimise your liabilities and maximise your return on investment.
To speak to one of our experts about your property portfolio, or if you are concerned about rental income that you have received but not disclosed, contact us today.
