Landlords struggling with unpaid tax and recent legislative changes

Landlords struggling with unpaid tax and recent legislative changes

The latest data from HM Revenue & Customs (HMRC) has revealed that 16,110 landlords declared unpaid tax during 2018/19 – up from just 6,600 in 2017/18.

Due to the number of landlords declaring unpaid tax, HMRC recovered £42 million in total during this period up from £21 million during the previous period.

Much of this unpaid tax relates to undeclared rental income and comes as the result of HMRC’s promotion of its Let Property Campaign, which has encouraged landlords to be open and honest about unpaid tax in return for more lenient penalties.

Launched in 2013, the campaign was originally only meant to run for 18 months but it has been extended and has continually bombarded landlords suspected of avoiding or underpaying tax with letters and notifications.

Although the 145 per cent rise in underpaying landlords coming forward is significant, the original campaign hoped to recover up to £500 million a year from more than 1.5 million landlords that HMRC suspected weren’t paying the correct tax.

In fact, only £85 million out of the anticipated £500 million in underpaid taxes has been recovered since the campaign was launched.

Unpaid taxes may, in part, be due to a lack of understanding on the part of landlords, who are struggling to keep abreast of the many recent changes that have affected the residential lettings sector.

Bridging lender, Market Financial Solutions (MFS) conducted research which found around 30 per cent of landlords do not understand the changes to House in Multiple Occupation (HMO) licensing, while a further 28 per cent are not aware of the abolition of Section 21 eviction notices.

The study also shows that 27 per cent are uncertain about the tenant fees ban, while an additional 19 per cent understand the changes, but don’t know what they will mean for them and their business.

More worryingly, 28 per cent do not comprehend the reforms to Inheritance Tax that have changed the tax-free allowance on properties being passed down, with a further 25 per cent struggling with the reforms on mortgage interest relief.

“The legislation and regulation governing the UK’s rental market are constantly evolving, and today’s research clearly shows that landlords are struggling to keep pace with the change. From HMO regulations to the abolition of Section 21, these are significant reforms that, for the most part, are rightly designed to protect tenants,” said Paresh Raja, Chief Executive Officer of MFS.

“Nevertheless, there’s evident frustration among landlords who feel they are being unfairly targeted, particularly when it comes to the stricter taxes being introduced.

“It’s essential that anyone renting out a property, even if they would not consider themselves a landlord, understands all the new reforms and takes action to ensure their properties meet the necessary standards and their finances are structured in line with the new reforms.”