Hmrc letter about non declared rental income

ha12roon

Hoping some of you can assist me with this quagmire.

I have recieved a letter from hmrc about suspected non declared rental income.

I live in my own mortgaged home with my wife and baby since 2017. We had my sister and brother in law move in with us due to their  personal circumstances just before covid and to help them out I did not request any contributions for the house hold costs etc during this time.

Then from late 2021 when they both got back on their feet they started as way of paying us back for looking after them during a very tough time. they started covering my monthly mortgage payment (I have very low loan to value and monthly mortgage is circa £450per month but market rents in similar houseshare situation would be double this with bills on top for houseshares  here locally). Also later on my sister started covering gas and electric bills and c.tax.

We all get along and tbh it's working well we have a large house and enjoy the company and don't mind them staying as long as they want to since they are able to save up for their own home  e.g. like a child moving back in with parents  but this tax headache was unforeseen. 

I never thought this would be classed as rental income as was just helping out my sister but seems hmrc is of opinion this should have been declared. Never had to deal with anything like this tbh as I earn via salaried employment which is taxed through paye. 

I have done some research and there is the rent a room scheme I believe if this is classed as renting that I would qualify under in our case and the mortgage payments would equate to less than the 7.5k tax threshold but not sure if when they started also paying bills if that would also be included which would take it over and I'm assuming I owe tax on this portion. I make all the payments and they reimburse me so is no profit. 

Any advice will be greatly appreciated TIA

Dazed_and_C0nfused

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

Hoenir

ha12roon said:

I have recieved a letter from hmrc about suspected non declared rental income.

What did the letter actually say?

From what you've said in your OP. The HMRC would have no knowledge of this arrangement. What therefore has sparked their interest? 

Bookworm105

the blunt answer is the rent a room (RaR) allowance of £7,500 is the amount of money you can receive WITHOUT deducting any costs from it.

you admit that the monthly mortgage payment + their contribution to bills  = > £625 per month so yes, you have made a taxable profit from your rental income under the RaR scheme 

As part of the rent was payment of your own personal mortgage, then the alternative of claiming income - costs = taxable profit would not work anyway, as mortgage is not an allowable cost in such a calculation

Rent a room in your home: The Rent a Room Scheme - GOV.UK (www.gov.uk)

if you want to contest the above then you will need to convince HMRC that your sister and her partner formed part of your own household and therefore bills (incl mortgage) were split between you as part of a mutual payment exercise. For example, I pay the mortgage, you buy the food that we all eat. Not very credible given what you have said so far.

Ferro

The post above is comprehensive and accurate. But, as raised earlier, how is HMRC aware of this arrangement? Information from neighbour ?

silvercar

Dazed_and_C0nfused said:

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

I would also suspect this. I would guess a neighbour has reported something fictitious, just to spook hmrc into sending you the letter you have received. 

Hoenir

silvercar said:

Dazed_and_C0nfused said:

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

I would also suspect this. I would guess a neighbour has reported something fictitious, just to spook hmrc into sending you the letter you have received. 

HMRC have access to a variety of data sources that now enable them to open lines of enquiry. 

Dazed_and_C0nfused

Hoenir said:

silvercar said:

Dazed_and_C0nfused said:

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

I would also suspect this. I would guess a neighbour has reported something fictitious, just to spook hmrc into sending you the letter you have received. 

HMRC have access to a variety of data sources that now enable them to open lines of enquiry. 

Totally agree but this doesn't appear to involve the usual route of a letting agent.

Ferro

Hoenir said:

silvercar said:

Dazed_and_C0nfused said:

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

I would also suspect this. I would guess a neighbour has reported something fictitious, just to spook hmrc into sending you the letter you have received. 

HMRC have access to a variety of data sources that now enable them to open lines of enquiry. 

Hard to see how they would access the information provided by the op. 

Nope - the anonymous letter or telephone call still seems to exist and HMRC is duty bound to act upon it.

Hoenir

Ferro said:

Hoenir said:

silvercar said:

Dazed_and_C0nfused said:

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

I would also suspect this. I would guess a neighbour has reported something fictitious, just to spook hmrc into sending you the letter you have received. 

HMRC have access to a variety of data sources that now enable them to open lines of enquiry. 

Hard to see how they would access the information provided by the op. 

I agree they don't.  Something else has triggered events. 

Ferro

Hoenir said:

Ferro said:

Hoenir said:

silvercar said:

Dazed_and_C0nfused said:

A more common scenario would be rental income from a separate property.

Is there no possibility that could be relevant 🤔.

If it is a private arrangement with your sister & brother in law it's hard to see how HMRC would be aware of that.

I would also suspect this. I would guess a neighbour has reported something fictitious, just to spook hmrc into sending you the letter you have received. 

HMRC have access to a variety of data sources that now enable them to open lines of enquiry. 

Hard to see how they would access the information provided by the op. 

I agree they don't.  Something else has triggered events. 

When I started with the Inland Revenue we were told that the most common source of information received was from the taxpayer themselves e.g. boasting of evasion, advertising, bad workmanship leading to informing etc etc 

Not suggesting that this has remotely been the case with the op, of course.