Not declaring income from rented property

pokey128

Hi
I was speaking with a friend of mine the other day who failed to sell her house before buying a new one and so is renting it and her husbands first house out.

She has recently started a business and so we were discussing tax returns and she said she has never done one before. She doesn't do one for her flat because they need the money and don't do one for her husbands because they are planning on selling it in the next couple of years.

She doesn't think there is any chance of her getting caught but I'm not sure - what are the penalties if she does? (this has been going on for 4 years)

kingstreet

Do they make a profit?

Is the rent more than the allowable expenses?

pokey128

I'm not sure about allowable expenses etc but I do know that they are making a profit of about 5-600 a month since the interest rates dropped.
If the expenses come to that then does she not need a return?

ognum

kingstreet wrote: »

Do they make a profit?

Is the rent more than the allowable expenses?

Don't think that it matters if you make a profit, you still need to do the return.

Did read somewhere that HMRC are having a crackdown but not sure how great the risks are.

I like to sleep at night so for me it's a no brainer!

Mojisola

pokey128 wrote: »

She has recently started a business and so we were discussing tax returns and she said she has never done one before. She doesn't do one for her flat because they need the money and don't do one for her husbands because they are planning on selling it in the next couple of years.

HMRC are going to love those excuses!

theartfullodger

As ognum says you need to do a return. HMRC get quite cross with people who don't do returns and may examine with more than usual enthusiasm someone who has failed to bother...

Two other reasons...
a) Someone else (tenant, agent, neighbour, family member ) may tell them - not necessarily the complete story...
b) If making a loss then by completing the return you can record the loss and use it in later years to pay less tax when making a profit..

Anything else they didn't "bother" to do?? Tell mortgage company?? Get insurance?? Get gas safety certificate??

Sigh!...

Mojisola

theartfullodger wrote: »

As ognum says you need to do a return. HMRC get quite cross with people who don't do returns and may examine with more than usual enthusiasm someone who has failed to bother...

That's right. She'd better make sure her new company's tax returns are perfectly done. Once they find out about the non-declared rental income, they'll go through every detail of all her finances.

If she can't afford the tax now, how is she going to pay the back-dated tax and the penalty?

Lovelyjoolz

I would have thought that if the tenant was going to grass your friend to anyone, it would be the mortgage company, and they would be VERY unhappy.

What would your friend do if the mortgage company pulled the plug and demanded immediate settlement in full?

And if the mortgage company told the HMRC (do they do that?) she could be in a heap of trouble.

I don't know how she sleeps at night.

Lovelyjoolz

Mojisola wrote: »

If she can't afford the tax now, how is she going to pay the back-dated tax and the penalty?

Ouch! That will be painful. How much are the penalties now? And do the compound interest nowadays?

FTBFun

pokey128 wrote: »

She doesn't think there is any chance of her getting caught but I'm not sure - what are the penalties if she does? (this has been going on for 4 years)

Civil penalties of up to 100% of the tax due, criminal prosecution also as this is quite clearly deliberate tax evasion. Are they mad?

Mojisola

Lovelyjoolz wrote: »

Ouch! That will be painful. How much are the penalties now? And do the compound interest nowadays?

Someone else will know for sure - but I think, if they decide you have deliberately not paid the tax, it can be anywhere between 50 and 100% of the tax due.