One short rental, one big tax headache...HMRC disclosure help please!

RagdollCat90_

Hello intelligent helpful people! I am a person in need this fine Friday morning!

I’ve received a letter from HMRC saying they believe I owe tax on rental income. They are correct. I rented out my main home for 6 months in 2023 before moving back in. This is the only time I’ve ever let a property and I’m struggling to work out what I owe for the disclosure. Could anyone help me with the calculations?

Here’s all the information I think you’ll need:

- Property was let from 8 April 2023 to 30 September 2023 (6 months).

- Rent received: £5,250

- Allowable expenses: £1,024

- This is my only property and only source of rental income.

- I am a UK resident in Scotland.

- Employment income (P60 April 2024): £56,000

- Mortgage: repayment mortgage, interest rate letter showed 4.15% from April 2023.

- Monthly mortgage payment was £614.97, but I’m unsure exactly how much of this was interest vs capital during the 6-month period - happy to provide extra details if needed.

- I am the sole owner and the only person named on the mortgage.

- I believe the NI due will be £0.

- I understand a penalty will apply.

If it helps at all, questions I need to answer are:

1. How much letting income did you not tell HMRC about for the tax year ending 2024?

2. How much unpaid tax is due for the tax year ending 2024?

3. What is the amount of National Insurance contributions that are due for the tax year ending 2024?

4. How much interest is due for the tax year ending 2024?

5. What is your penalty percentage rate for the tax due for the tax year ending 2024?

6. What is the reason for the penalty rate you have chosen?

7. Where did the undeclared income or gain included in this disclosure come from?

8. Did you apply a basic-rate tax reduction for any residential finance costs in your calculations?

9. How much residential finance costs were used to calculate the tax reduction for the tax year ending 2024, in pounds?

Absolutely kicking myself for not realising I needed to declare this at the time. Huge thanks in advance for any help - this has made me really anxious and I want to get it right.

silvercar

1. How much letting income did you not tell HMRC about for the tax year ending 2024? 5250

2. How much unpaid tax is due for the tax year ending 2024? see below 1352

3. What is the amount of National Insurance contributions that are due for the tax year ending 2024? 0

4. How much interest is due for the tax year ending 2024? 81 see below

5. What is your penalty percentage rate for the tax due for the tax year ending 2024? 10% see below

6. What is the reason for the penalty rate you have chosen? 6 months late

7. Where did the undeclared income or gain included in this disclosure come from? short term temporary rental of main residence

8. Did you apply a basic-rate tax reduction for any residential finance costs in your calculations? yes

9. How much residential finance costs were used to calculate the tax reduction for the tax year ending 2024, in pounds? you need to find the amount of interest you paid at that time. it wouldn't be unreasonable to find the amount for the whole of the tax year and take the correct proportion of it, if that is all you can do.

A suggested calculation - to which you need to correct my assumptions:

Profit = 5250 - 1025 - less mortgage costs.

Let's assume that your mortgage costs were 50% capital, 50% interest - though you need to find this out. So you need to take 5.5 months of  50% of 615= 1691. This is restricted to the basic rate.

Rough calculation for a higher rate payer. 5250-1025=4225 taxed at 40% =1690.
1691 restricted to basic rate would only allow 20% off the above figure ie 338. so 1690-338=1352

All this should have been in the 23-24 year and submitted and paid by January 2025. So you are less than a year late. hmrc interest rates seem to be around 7% annual if you google it, so you could offer that. Plus a penalty of 5% for being 30+ days late and then a further 5% for being 6 months+ late. So you could offer 6% interest as less than a year =81 and 10% late payment penalty = 135.
So now we are at 1352+81+135=1568

That's my first stab at an answer. Happy for corrections and amendments.

---
I see the above as a worst case, you now plead, first offence, offer to put it right without an enquiry, pay what you owe speedily and you may find a reduction in the penalties charged. I'd be inclined to make a payment now (or at least before 31January 2026) to show willing.

Dazed_and_C0nfused

Op says they are a Scottish resident and if that was also the case for 2023/24 then the tax rate will be 42% rather than 40%.

glennevis

Dazed_and_C0nfused said:

Op says they are a Scottish resident and if that was also the case for 2023/24 then the tax rate will be 42% rather than 40%.

It is an offence to let a property in Scotland without being a registered landlord.
And there's a raft of legislation underpinning this, so that's not the only breach of the law.

You'll just have to hope your ex tenants don't read this thread and work out who you are, as they could take you to court for the rent payments (not to mention the possibility of any fines).

RagdollCat90_

I was registered with the council thank

mybestattempt

silvercar said:

1. How much letting income did you not tell HMRC about for the tax year ending 2024? 5250

2. How much unpaid tax is due for the tax year ending 2024? see below 1352

3. What is the amount of National Insurance contributions that are due for the tax year ending 2024? 0

4. How much interest is due for the tax year ending 2024? 81 see below

5. What is your penalty percentage rate for the tax due for the tax year ending 2024? 10% see below

6. What is the reason for the penalty rate you have chosen? 6 months late

7. Where did the undeclared income or gain included in this disclosure come from? short term temporary rental of main residence

8. Did you apply a basic-rate tax reduction for any residential finance costs in your calculations? yes

9. How much residential finance costs were used to calculate the tax reduction for the tax year ending 2024, in pounds? you need to find the amount of interest you paid at that time. it wouldn't be unreasonable to find the amount for the whole of the tax year and take the correct proportion of it, if that is all you can do.

A suggested calculation - to which you need to correct my assumptions:

Profit = 5250 - 1025 - less mortgage costs.

Let's assume that your mortgage costs were 50% capital, 50% interest - though you need to find this out. So you need to take 5.5 months of  50% of 615= 1691. This is restricted to the basic rate.

Rough calculation for a higher rate payer. 5250-1025=4225 taxed at 40% =1690.
1691 restricted to basic rate would only allow 20% off the above figure ie 338. so 1690-338=1352

All this should have been in the 23-24 year and submitted and paid by January 2025. So you are less than a year late. hmrc interest rates seem to be around 7% annual if you google it, so you could offer that. Plus a penalty of 5% for being 30+ days late and then a further 5% for being 6 months+ late. So you could offer 6% interest as less than a year =81 and 10% late payment penalty = 135.
So now we are at 1352+81+135=1568

That's my first stab at an answer. Happy for corrections and amendments.

---
I see the above as a worst case, you now plead, first offence, offer to put it right without an enquiry, pay what you owe speedily and you may find a reduction in the penalties charged. I'd be inclined to make a payment now (or at least before 31January 2026) to show willing.

There are also penalties for 'failure to notify' at large here as well as late payment penalties.

As HMRC are asking about the rate of penalty and reasons I believe it will be 'failure to notify' penalties they are referring to as the maximum they could assess can be reduced depending or whether there is a 'reasonable excuse' for the failure to notify and the quality of the disclosure.

Late payment penalties are fixed at 5% unless there is a reasonable excuse for the late payment when they are not charged at all.

The letter from HMRC should make it clear what type of penalties they are asking about and also the factors they will consider when deciding the amount to assess in addition to the tax and interest due.

There isn't enough background information from the OP about the reason for the failure/lateness to give sound advice about penalty reduction. 

RagdollCat90_

Thanks all for your help so far. The HMRC letter is very vague and gives no detail. It’s literally a notification to tell them if I need to make a disclosure or not. And I do. But I don’t have a justifiable reason for not submitting before now - I didn’t know won’t wash. 

mybestattempt

RagdollCat90_ said:

Thanks all for your help so far. The HMRC letter is very vague and gives no detail. It’s literally a notification to tell them if I need to make a disclosure or not. And I do. But I don’t have a justifiable reason for not submitting before now - I didn’t know won’t wash. 

You may find this information useful to ensure you make a full disclosure, (section 3 gives information on working out the tax, interest and penalties) :

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


This gives more details about failure to notify penalties:

https://www.gov.uk/government/publications/compliance-checks-penalties-for-failure-to-notify-ccfs11/compliance-checks-penalties-for-failure-to-notify-ccfs11

You may not have a reasonable excuse for the failure and HMRC have prompted a disclosure, however, if you provide the information they want with the minimum of delay that will work in your favour. 

I hope this all helps.