Advice on HMRC asking for taxable income on rental

lachesis

Hey

A few years ago I was going to sell my house but because of the crash it would have meant taking a £50k loss. Which I couldn't afford. So I rented it out while I was getting married and sorting other life out. I wasn't making a profit on the property - in fact it was getting leased out at less than I was paying out for the mortgage - the mortgage had also been switched to interest only for affordability.

I finally got enough bounce back in the market to reduce the loss and am in the process of putting it on the market but I received a letter in the post from HMRC saying it has come to their attention the property may have been leased and I have not told them about this income. Just want to know people's thoughts on this before I contact them officially. Does it count as an income even though I was in arrears? And still am? Do I need ot be concerned with getting a massive cash demand?

I did get the consent to lease from my lender and to complicate things further, my lender was NRAM who were bought out by the government as well. I just want to know what I'm opening myself up to and what expectation - am I going to get a demand for huge cash settlement basically.

Lokolo

Just because you are making a loss it doesn't mean you shouldn't be declaring it.

You should be doing a self assessment.

I would start by getting everything in order. i.e. work out all incomes received, all interest paid and all allowable expenses.

steampowered

Yes, you have to pay income tax on the rent.

If you have not been paying the tax you should have paid, then yes you may be liable for the tax you should have paid and possibly also some sort of penalty.

Read https://forums.moneysavingexpert.com/discussion/5180214/tenancies-in-eng-wales-guides-for-landlords-and-tenants and https://www.gov.uk/renting-out-a-property/paying-tax.

Comms69

lachesis wrote: »

Hey

A few years ago I was going to sell my house but because of the crash it would have meant taking a £50k loss. Which I couldn't afford. So I rented it out while I was getting married and sorting other life out. I wasn't making a profit on the property - in fact it was getting leased out at less than I was paying out for the mortgage - the mortgage had also been switched to interest only for affordability.

I finally got enough bounce back in the market to reduce the loss and am in the process of putting it on the market but I received a letter in the post from HMRC saying it has come to their attention the property may have been leased and I have not told them about this income. Just want to know people's thoughts on this before I contact them officially. Does it count as an income even though I was in arrears? And still am? Do I need ot be concerned with getting a massive cash demand?

I did get the consent to lease from my lender and to complicate things further, my lender was NRAM who were bought out by the government as well. I just want to know what I'm opening myself up to and what expectation - am I going to get a demand for huge cash settlement basically.

Given this problem, have you complied with all other landlord responsibilities?


e.g. gas safety checks, right to rent checks, deposit protection?

Vestra

Glad to see HMRC cracking down on tax evasion.

AnotherJoe

lachesis wrote: »

Hey

A few years ago I was going to sell my house but because of the crash it would have meant taking a £50k loss. Which I couldn't afford. So I rented it out while I was getting married and sorting other life out. I wasn't making a profit on the property - in fact it was getting leased out at less than I was paying out for the mortgage - the mortgage had also been switched to interest only for affordability.
In that case, since you were making a loss on an IO mortgage then there should be no tax to pay on that account but see below re fines. As said upthread you need to itemise, for each year, what your expenses and income were.
I finally got enough bounce back in the market to reduce the loss and am in the process of putting it on the market but I received a letter in the post from HMRC saying it has come to their attention the property may have been leased and I have not told them about this income. Just want to know people's thoughts on this before I contact them officially. Does it count as an income even though I was in arrears? And still am? Do I need ot be concerned with getting a massive cash demand?
Probably not but you should have been declaring it and there also a possibility they may fine you for nit doing tax returns over 15 years. That could be very expensive !!! However I do think I've seen reports where in similar circumstances, very late tax returns but no profit, they have waived it.

I did get the consent to lease from my lender and to complicate things further, my lender was NRAM who were bought out by the government as well. I just want to know what I'm opening myself up to and what expectation - am I going to get a demand for huge cash settlement basically.

None of that is in any way relevant. As you made no profit and seemingly won't even make any capital gain, your main issue is a potential fine.
For each year compile your income, outgoings (nit just the interest but expenses and you can also claim for a maintenance allowance.
I suggest since you've been clueless for so long you pay an accountant experienced in this field to do it for you to make sure you miss nothing.

00ec25

you have to DECLARE you were in receipt of rent

you have to pay tax on the PROFIT you made

HMRC are not going to go away when they obviously know you were letting the property. So you inform them of your rental profit calculation and you pay anything you owe.

as you probably have no idea how to work out the PROFIT for TAX PURPOSES (it is not the same as whether the rent was less than the mortgage) then start here:

https://www.gov.uk/renting-out-a-property/paying-tax

however, given HMRC is already investigating you it may be quicker and safer to pay an accountant who already knows how to calculate your profit and how to deal with HMRC given the fact the rules regarding mortgage interest changed 3 years ago

POPPYOSCAR

How did it 'come to their attention'?

ACG

There will probably be a tax demand as the last couple of years you have been unable to declare the interest element of your mortgage (either in full or part) as an expense.

There could also be fines and interest added to it for not paying your tax and not declaring it.

MEM62

lachesis wrote: »

Hey

A few years ago I was going to sell my house but because of the crash it would have meant taking a £50k loss. Which I couldn't afford. So I rented it out while I was getting married and sorting other life out. I wasn't making a profit on the property - in fact it was getting leased out at less than I was paying out for the mortgage - the mortgage had also been switched to interest only for affordability.

For tax purposes, it is highly unlikely that you were making a loss. Your profit would be the rental income less any costs. Your costs are things like estate agent fees, maintenance, insurances and mortgage interest. Note -mortgage interest, not anything that is repaid towards the capital.

I finally got enough bounce back in the market to reduce the loss and am in the process of putting it on the market but I received a letter in the post from HMRC saying it has come to their attention the property may have been leased and I have not told them about this income. Just want to know people's thoughts on this before I contact them officially. Does it count as an income even though I was in arrears? And still am? Do I need ot be concerned with getting a massive cash demand?

Once you started letting the property, you had an obligation to inform HMRC, register for self assessment and declare the income for tax.

I did get the consent to lease from my lender and to complicate things further, my lender was NRAM who were bought out by the government as well. I just want to know what I'm opening myself up to and what expectation - am I going to get a demand for huge cash settlement basically.

You not opening anything up - it's already open.

You will have to come clean and let them know that the property has been rented. You will need to gather evidence of the income that you have derived from it and, if you want to offset them against the impending tax bill, details of all your expenditure. The link below will help with the calculations. Being very apologetic and pleading ignorance will be your best chance of avoiding any further penalties.

https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

G_M

See and pay an accountant.


You are out of your depth and need to deal with this both quickly and accurately.