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

Seekingunderstanding

Hi,

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.

Help

MDMD

Nothing you can do - it’s set out in the legislation: ITA 2007 s837(4). 

https://www.legislation.gov.uk/ukpga/2007/3/section/837

Jeremy535897

HMRC have no discretion to accept the backdating of a form 17, which only has effect from the date it is signed by the last party to sign, and if HMRC receive the form within 60 days. See:
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9860

You would gain nothing from going to a tribunal. See Koshal & Another v HMRC:
https://www.casemine.com/judgement/uk/5b2897d72c94e06b9e19c1d3

Seekingunderstanding

Jeremy535897 - many thanks for the reply.  The link to the tribunal summary you provided as you say makes it clear that the tribunal route is not an option. Really appreciate this information and you responding so quickly. 

Jeremy535897

Thank you. The tax and the interest are non-negotiable, unfortunately. However, there may be some scope for penalty mitigation on the extra 49% of the income, in circumstances where you did not realise you were underdeclaring income, and your actions have brought the underpayment to light. See:
https://taxaid.org.uk/guides/taxpayers/tax-returns/enquiries-and-other-problems-with-the-returns-you-have-submitted

See also this (written for agents):
https://www.gov.uk/guidance/penalties-an-overview-for-agents-and-advisers

hxjhxj

Based upon HMRC's own rules you should not be paying a penalty.  Unprompted disclosure and full co-operation = penalty % of nil.

sheramber

hxjhxj said:

Based upon HMRC's own rules you should not be paying a penalty.  Unprompted disclosure and full co-operation = penalty % of nil.

not according to this- a lesser penalty but not zero penalty.

https://www.gov.uk/government/publications/let-property-campaign-your-guide-to-making-a-disclosure/let-property-campaign-your-guide-to-making-a-disclosure

If you make a full and voluntary disclosure of all unpaid liabilities in these circumstances, you can usually expect a lower penalty than HMRC would normally charge if they raised an enquiry or compliance check without the disclosure.

hxjhxj

sheramber said:

hxjhxj said:

Based upon HMRC's own rules you should not be paying a penalty.  Unprompted disclosure and full co-operation = penalty % of nil.

not according to this- a lesser penalty but not zero penalty.

If you make a full and voluntary disclosure of all unpaid liabilities in these circumstances, you can usually expect a lower penalty than HMRC would normally charge if they raised an enquiry or compliance check without the disclosure.

A lesser penalty includes a nil penalty.  Unprompted disclosure with careless penalty is a range of 0-15%.  Full disclosure and co-operation gets you to zero penalty.

Jeremy535897

I don't think we have sufficient facts to judge what penalties might apply. For example, we do not know whether OP completes a self assessment tax return annually, or whether OP has recently registered. We don't know quite what was disclosed. Filing a Form 17 and asking for it to be backdated is not quite the same as explaining to HMRC that you have underdeclared tax accidentally. If you have done sufficient research to establish the need for a Form 17, it doesn't take much more to work out that backdating is not an option. We don't even know whether the penalties are for late payment, failure to declare, or both.

Dazed_and_C0nfused

I did ask on the op's original post on a different board (not Cutting Tax) if he had declared and paid the tax on his (1%) share  but I don't think that was answered.

sheramber

hxjhxj said:

sheramber said:

hxjhxj said:

Based upon HMRC's own rules you should not be paying a penalty.  Unprompted disclosure and full co-operation = penalty % of nil.

not according to this- a lesser penalty but not zero penalty.

If you make a full and voluntary disclosure of all unpaid liabilities in these circumstances, you can usually expect a lower penalty than HMRC would normally charge if they raised an enquiry or compliance check without the disclosure.

A lesser penalty includes a nil penalty.  Unprompted disclosure with careless penalty is a range of 0-15%.  Full disclosure and co-operation gets you to zero penalty.

Yes, but it also includes a 5% 0r 10% penalty or any other figure HMRC decide.  It is not necessarily 0% as you stated when you said 

 should not be paying any penalty