How to deal with undeclared rental income from previous years

Workerbee999

I’m trying to support my son’s girlfriend. She and her sister inherited a house 10 years ago, which was held in trust before transferring to their ownership when she was 18 (4 years ago). Since then they have each earned approx £7k/pa rental income (before it went to the trustees and they were given money when needed), but no one has been guiding them about tax affairs and she didn’t realise she had to do annual tax returns so has not declared anything to HMRC. (In fact she was told she only had to do tax returns when she stopped being a student).

However, up until 25/26 she has been a full time student with no other earnings so there would not have been any tax due. There will be tax payable for this year 25/26 as she will have earned about £12k after graduating last summer.

She has now just registered for tax returns - but not before 5th Oct - but has received a message to say that instead of responding to her with a UTR within 72 hours, it won’t be until end Feb and not to phone them before then - so she also cannot submit a return for 24/25 by 31st Jan.

Is there anything I can advise her to do now other than wait? I know there is no tax due for any year but could she be exposed to 4 years of £100 fines for not doing returns before? She is worried about having to find £400 that she doesn’t have.

Thanks 

DRS1

This page might help

Let Property Campaign: your guide to making a disclosure - GOV.UK

Workerbee999

DRS1 said:

This page might help

Let Property Campaign: your guide to making a disclosure - GOV.UK

Thank you. Having a quick look, I can see that is a way of declaring history but it seems to concentrate on declaring unpaid tax due - we know there isn’t any tax due as she had no other income in each of those years. So does it mean it’s not necessary to declare anything? 

Vitor

She’s very unlikely to face £100 fines. You only get penalties if HMRC issued a notice to file, which they didn’t. Rental income of ~£7k with no other earnings is below the personal allowance, so no tax was due. She’s done the right thing by registering. HMRC’s delay issuing a UTR is on them. Keep the registration confirmation. Once the UTR arrives, explain the position. HMRC normally withdraw earlier returns and penalties where no tax is due.

mybestattempt

Workerbee999 said:

I’m trying to support my son’s girlfriend. She and her sister inherited a house 10 years ago, which was held in trust before transferring to their ownership when she was 18 (4 years ago). Since then they have each earned approx £7k/pa rental income (before it went to the trustees and they were given money when needed), but no one has been guiding them about tax affairs and she didn’t realise she had to do annual tax returns so has not declared anything to HMRC. (In fact she was told she only had to do tax returns when she stopped being a student).

However, up until 25/26 she has been a full time student with no other earnings so there would not have been any tax due. There will be tax payable for this year 25/26 as she will have earned about £12k after graduating last summer.

She has now just registered for tax returns - but not before 5th Oct - but has received a message to say that instead of responding to her with a UTR within 72 hours, it won’t be until end Feb and not to phone them before then - so she also cannot submit a return for 24/25 by 31st Jan.

Is there anything I can advise her to do now other than wait? I know there is no tax due for any year but could she be exposed to 4 years of £100 fines for not doing returns before? She is worried about having to find £400 that she doesn’t have.

As she has just informed HMRC about the rental income they will presumably not have given her notice to file self assessment returns for 2024/25 and earlier years.

I assume your reference to penalties is to 'late filing' penalties, however, she can only be charged late filing penalties if she had been given notice to file a tax return and had failed to do so by the due date.

I would suggest that she waits until HMRC contact her with notice to file the tax return(s) they require and any other information they need to bring her tax affairs up to date, which may include the period the property was held in trust.

In the meantime it would be prudent for her to make sure she has all the information she needs to establish the correct amount of taxable property income for the relevant tax years along with a full understanding of how the trust dealt with tax compliance for the property income.

DRS1

Workerbee999 said:

DRS1 said:

This page might help

Let Property Campaign: your guide to making a disclosure - GOV.UK

Thank you. Having a quick look, I can see that is a way of declaring history but it seems to concentrate on declaring unpaid tax due - we know there isn’t any tax due as she had no other income in each of those years. So does it mean it’s not necessary to declare anything? 

Yes you are right it does talk about tax not rent.  I just thought it might be a way to deal with the missing 4 years under one head.

Probably best to do what @Vitor and @mybestattempt suggest and just talk to HMRC when they get round to dealing with her registration.

I know they are currently trying to put people off contacting them until after 31 January on the basis they are very busy(I got that in a recorded message when I called earlier this month) so it's not a surprise they don't want to send her anything until February.

itsthelittlethings

mybestattempt said:

Workerbee999 said:

I’m trying to support my son’s girlfriend. She and her sister inherited a house 10 years ago, which was held in trust before transferring to their ownership when she was 18 (4 years ago). Since then they have each earned approx £7k/pa rental income (before it went to the trustees and they were given money when needed), but no one has been guiding them about tax affairs and she didn’t realise she had to do annual tax returns so has not declared anything to HMRC. (In fact she was told she only had to do tax returns when she stopped being a student).

However, up until 25/26 she has been a full time student with no other earnings so there would not have been any tax due. There will be tax payable for this year 25/26 as she will have earned about £12k after graduating last summer.

She has now just registered for tax returns - but not before 5th Oct - but has received a message to say that instead of responding to her with a UTR within 72 hours, it won’t be until end Feb and not to phone them before then - so she also cannot submit a return for 24/25 by 31st Jan.

Is there anything I can advise her to do now other than wait? I know there is no tax due for any year but could she be exposed to 4 years of £100 fines for not doing returns before? She is worried about having to find £400 that she doesn’t have.

As she has just informed HMRC about the rental income they will presumably not have given her notice to file self assessment returns for 2024/25 and earlier years.

I assume your reference to penalties is to 'late filing' penalties, however, she can only be charged late filing penalties if she had been given notice to file a tax return and had failed to do so by the due date.

I would suggest that she waits until HMRC contact her with notice to file the tax return(s) they require and any other information they need to bring her tax affairs up to date, which may include the period the property was held in trust.

In the meantime it would be prudent for her to make sure she has all the information she needs to establish the correct amount of taxable property income for the relevant tax years along with a full understanding of how the trust dealt with tax compliance for the property income.

How would she have been given notice to file if HMRC did not know she had property income?

mybestattempt

itsthelittlethings said:

mybestattempt said:

Workerbee999 said:

I’m trying to support my son’s girlfriend. She and her sister inherited a house 10 years ago, which was held in trust before transferring to their ownership when she was 18 (4 years ago). Since then they have each earned approx £7k/pa rental income (before it went to the trustees and they were given money when needed), but no one has been guiding them about tax affairs and she didn’t realise she had to do annual tax returns so has not declared anything to HMRC. (In fact she was told she only had to do tax returns when she stopped being a student).

However, up until 25/26 she has been a full time student with no other earnings so there would not have been any tax due. There will be tax payable for this year 25/26 as she will have earned about £12k after graduating last summer.

She has now just registered for tax returns - but not before 5th Oct - but has received a message to say that instead of responding to her with a UTR within 72 hours, it won’t be until end Feb and not to phone them before then - so she also cannot submit a return for 24/25 by 31st Jan.

Is there anything I can advise her to do now other than wait? I know there is no tax due for any year but could she be exposed to 4 years of £100 fines for not doing returns before? She is worried about having to find £400 that she doesn’t have.

As she has just informed HMRC about the rental income they will presumably not have given her notice to file self assessment returns for 2024/25 and earlier years.

I assume your reference to penalties is to 'late filing' penalties, however, she can only be charged late filing penalties if she had been given notice to file a tax return and had failed to do so by the due date.

I would suggest that she waits until HMRC contact her with notice to file the tax return(s) they require and any other information they need to bring her tax affairs up to date, which may include the period the property was held in trust.

In the meantime it would be prudent for her to make sure she has all the information she needs to establish the correct amount of taxable property income for the relevant tax years along with a full understanding of how the trust dealt with tax compliance for the property income.

How would she have been given notice to file if HMRC did not know she had property income?

My advice is based on the premise that she has not been given notice to file for 2024/25 and earlier years.

mlz1413

Your son's GF and her sister have registered as soon as they knew they had to.
Also this is the first year tax is due, because previously the income was below the tax threshold. 
So, although it hasn't been textbook, it has been honest.

Wait for the registration to arrive and then the sisters take the time to call and ask HMRC how to set up the account.  Which years to register for and how to complete. 

I have always found HMRC helpful (When you get through). 

Whilst you wait you can help the sisters set up a system to record income and expenses.

Also it would be sensible if they read up on being landlords. 
And maybe get some proper tax advice if they are thinking of selling in the future. 

poseidon1

mlz1413 said:

Your son's GF and her sister have registered as soon as they knew they had to.
Also this is the first year tax is due, because previously the income was below the tax threshold. 
So, although it hasn't been textbook, it has been honest.

Wait for the registration to arrive and then the sisters take the time to call and ask HMRC how to set up the account.  Which years to register for and how to complete. 

I have always found HMRC helpful (When you get through). 

Whilst you wait you can help the sisters set up a system to record income and expenses.

Also it would be sensible if they read up on being landlords. 
And maybe get some proper tax advice if they are thinking of selling in the future. 

Joining the National Residential Landlords Association and taking advantage of their significant educational resources should be considered  essential for newbie landlords -

https://www.nrla.org.uk/resources/introduction

As for potential late filing penalties as mentioned by others and as set out below, these will not apply in the case of voluntary disclosures -

https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em4623#:~:text=EM4620-,EM4623 - Penalties: Failure to Make a Return: All Years,notice to file, see EM1505.&text=what you have received is,or later periods/years return.

However, if the girls have transitioned into landlord status with zero guidance from the original trustees, it begs the question whether the trustees were themselves tax compliant during the girls minority.

This question may arise during the course of the girls disclosures, so would make sense for them to check with the trustees what  ( if anything) had been happening with regard to prior years tax compliance.

Even if this were a Bare Trust situation, there may have been a technical requirement for the bare trust to be entered on HMRC's trust register prior to its eventual termination, notwithstanding the fact that bare trust income is directly assessable on the minors  if tax were actually due - guidance below refers

https://library.croneri.co.uk/cch_uk/btr/354-400#:~:text=Under self-assessment, trustees of,or capital gains tax due.

Workerbee999

Thanks everyone for your guidance, we’ll wait for the UTR to come through and take it from there, and will prep all the info in the meantime