Late Submission of Form 17 results in large tax bill - help.

in Cutting tax
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I own a rental property with my wife which she inherited from her mother. I own 1% and she owns 99%. This was documented with the Land Registry in Feb 2019 and prior to its rental. We've diligently kept all the financial records.

Life has been extremely hectic (work, family, pandemic) and as my wife's share of the income was less than her tax free allowance for 2019/2020 and 2020/2021 and 2021/2022 I believed we did not have tax to pay or have an issue to resolve. However as she has now started to receive a DWP pension I realised that she would need to start paying tax for the tax year 2022/2023.

I looked at the HMRC site for guidance which  revealed that we needed to submit a Form 17 to have the split of the ownership recognised by HMRC. I've submitted the form, with supporting evidence and requested that they back date it to Feb 2019 in-accordance with the Land Registry documents. However they ignored this and set the date as the submission date of March 2022. This means I have ta ax liability for 50% of the property income for every tax year 2019 through 2022 and as a 40% tax payer a large unexpected tax bill.

I've started and I'm in the process of making a Disclosure for my property tax income to HMRC under the Let Property Campaign. HMRC have advised that I need to pay tax, penalties and interest amounting to £4500 based on the 50% share rather than the approx £100 based on the 1% share. This seems grossly unfair and disproportionate.

Is there any advice on how to proceed?

My options appear to be

1) Pay the £4500 and take it as a tough learning lesson.
2) Reply in the Disclosure with the tax, interest and penalties associated with my 1% share provoking HMRC to reject it and then seek to go to a tribunal.

I don't want to compound an already difficult issue. Has anyone any advice on my options or have been in a similar position I can learn from?

The Let Property Campaign advertises itself as a way to resolve unpaid tax and not be over penalised. This doesn't seem to be the case in practice.



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