The latest figures from HM Revenue and Customs (HMRC) send a stark warning to UK landlords: the era of undeclared rental income going unnoticed is over. In the 2023/24 tax year, HMRC recovered a staggering £107 million from landlords who had failed to pay the correct tax—the highest annual figure since the launch of its flagship disclosure scheme, the Let Property Campaign.
However, beneath this headline figure lies a more telling trend. The number of landlords voluntarily coming forward to settle their tax affairs has dropped to its lowest level in years, with only 7,800 disclosures made, down from around 11,000 the previous year. This paradox—record collections from a shrinking pool of volunteers—signals a significant strategic shift. HMRC is no longer just waiting for landlords to come forward; it is actively and successfully hunting for them.
This article delves into HMRC’s intensifying crackdown, explains how the Let Property Campaign can serve as a lifeline, and provides a clear action plan for any landlord concerned about their tax position.
Understanding the Let Property Campaign
The Let Property Campaign is a disclosure facility offered by HMRC that gives landlords a structured way to get their tax affairs in order. It is designed as an olive branch, allowing individuals to report previously undeclared rental income with more favourable terms and lower penalties than if HMRC discovers the discrepancy first.
Who Can Use the Campaign?
The campaign is intentionally broad, covering the vast majority of individual landlord scenarios. You should consider using the scheme if you are an individual who rents out residential property and has undisclosed income from:
- A single rental property: Whether you have one buy-to-let or a small portfolio.
- Multiple residential properties: If you are a portfolio landlord.
- A room in your main home: Specifically, if your income exceeds the tax-free threshold of the Rent a Room Scheme (£7,500 per year).
- A UK property while living abroad: If you are considered a non-resident landlord for tax purposes (living overseas for more than six months).
- Holiday lets: Including properties in the UK or abroad that are rented out on a short-term basis.
- Inherited property: If you have inherited a home and subsequently rented it out.
Who is Excluded from the Campaign?
It’s important to note that the campaign is exclusively for individual landlords dealing with residential property. It does not cover income received through a company or trust, nor does it apply to income from non-residential properties like shops, offices, or garages.
The Shift from Voluntary Disclosure to Active Enforcement
The fall in voluntary participation, coupled with the record-breaking tax recovery, demonstrates that HMRC’s compliance efforts are becoming far more sophisticated and effective. The department is now armed with powerful tools and access to vast amounts of data that allow it to build a comprehensive picture of the UK property rental market.
How HMRC is Identifying Non-Compliant Landlords
Gone are the days when HMRC relied on tip-offs. Today, its approach is data-driven and forensic.
The ‘Connect’ Supercomputer
At the heart of HMRC’s enforcement capability is ‘Connect’, a powerful data analytics system. It cross-references billions of data points from a multitude of government and corporate sources to flag discrepancies. For a landlord, this means HMRC can compare information from:
- Land Registry records
- Council Tax and electoral roll data
- Tenancy deposit schemes
- Stamp Duty Land Tax (SDLT) records
If the system sees that you own a property but are not declaring rental income on your tax return, it will raise a red flag.
Information from Third Parties
HMRC has the legal power to request information from third parties. This includes letting agents, who hold records of rents collected on behalf of landlords. Most significantly, it now includes digital platforms. Global platforms like Airbnb, Vrbo, and Booking.com are required to report the income earned by their hosts directly to tax authorities, making it virtually impossible to hide this revenue stream.
Common Pitfalls: Why Landlords Get Caught Out
While some landlords deliberately evade tax, many fall foul of the rules through genuine mistakes or a lack of understanding. Experts note that “accidental landlords”—those who may have inherited a property or are temporarily renting out a former home—are particularly vulnerable.
1. Capital Expenditure vs. Allowable Expenses
This is one of the most common areas of confusion.
- Allowable Expenses: These are the day-to-day costs of running the property that can be deducted from rental income to reduce the tax bill. This includes repairs, maintenance, letting agent fees, and insurance. For example, repairing a broken boiler or replacing a worn-out carpet is allowable.
- Capital Expenditure: This is money spent on improving or upgrading the property, which increases its value. This cannot be offset against rental income. For instance, building an extension, converting a loft, or upgrading a basic kitchen to a luxury specification is considered a capital improvement. While you can’t deduct it from rent, it can be used to reduce your Capital Gains Tax bill when you eventually sell the property.
2. Changes to Mortgage Interest Relief (Section 24)
Since 2020, landlords can no longer deduct their mortgage interest costs from their rental income. Instead, they receive a tax credit based on 20% of their interest payments. This change has pushed many landlords into a higher tax bracket, as they are now taxed on their turnover rather than just their profit. Many smaller landlords are still unaware of or confused by this rule, leading to significant underpayment of tax.
3. Misunderstanding the Rent-a-Room Scheme
The Rent-a-Room Scheme allows you to earn up to £7,500 per year tax-free from letting out a furnished room in your main residence. However, if your income from this activity exceeds the threshold, you must complete a tax return and may have tax to pay.
4. Poor Record Keeping
All landlords are legally required to keep clear and accurate records of their rental income and expenses. This includes bank statements, receipts, and invoices. Failing to do so not only makes it difficult to complete an accurate tax return but also leaves you exposed if HMRC opens an inquiry.
The Cost of Waiting: Penalties for Non-Compliance
Ignoring a potential tax issue is the worst thing a landlord can do. If HMRC launches an investigation before you come forward, the penalties are significantly higher. The penalty amount depends on why you failed to pay the right amount of tax.
- Careless Error: Penalties can be between 0% and 30% of the tax owed.
- Deliberate Error: Penalties rise sharply to between 20% and 70%.
- Deliberate and Concealed Error: This is the most serious category, with penalties ranging from 30% to 100% of the tax owed.
By using the Let Property Campaign, you signal to HMRC that your error was not deliberate concealment, which almost always results in a much lower penalty. In the most serious cases of deliberate tax evasion, HMRC can and does pursue criminal prosecution.
Your Action Plan: How to Use the Let Property Campaign
If you suspect you have undeclared rental income, taking proactive steps is crucial.
- Acknowledge and Assess: The first step is to recognise that there may be an issue. Review your records and get a general idea of the periods for which income might not have been declared.
- Seek Professional Advice: Before contacting HMRC, it is highly recommended that you speak to an accountant or tax advisor who specialises in property tax. They can help you calculate exactly what you owe and ensure your disclosure is accurate and complete.
- Notify HMRC: You (or your advisor) must first notify HMRC of your intention to make a disclosure. This can be done online through the gov.uk digital disclosure service. This starts a 90-day clock.
- Disclose and Calculate: Within 90 days of notification, you must calculate and submit the total amount of undeclared income, the tax owed, the interest on the late payment, and the proposed penalty. Your advisor will be instrumental in this process.
- Make a Formal Offer and Pay: Once the disclosure is complete, you make a formal offer to HMRC. Once accepted, you must pay what you owe. If you cannot pay in a single lump sum, it may be possible to arrange a ‘Time to Pay’ instalment plan with HMRC.
HMRC’s record-breaking £107 million recovery is not a one-off event; it’s the new standard. With advanced data analytics and comprehensive information sharing, the tax authority’s ability to detect undeclared rental income has never been greater.
For landlords with outstanding tax liabilities, the window of opportunity to come forward on favourable terms is narrowing. The Let Property Campaign offers a structured, manageable, and cost-effective route to regularise your affairs and gain peace of mind. Waiting for the brown envelope from HMRC to land on your doormat is a gamble that will almost certainly result in higher penalties and far greater stress.
Frequently Asked Questions (FAQs)
How far back do I need to declare rental income?
The period you need to disclose depends on the reason for the error. If it was a genuine mistake, you typically need to go back up to 6 years. However, if HMRC can prove you deliberately avoided tax, they can open an inquiry that goes back as far as 20 years.
I only rent out my spare room on Airbnb occasionally. Does this really apply to me?
Yes. All income from property, including short-term lets on platforms like Airbnb, is potentially taxable. If your gross income from this activity is over the Rent-a-Room Scheme threshold (£7,500) or the personal trading allowance (£1,000), you must declare it.
What if I can’t afford to pay the tax bill all at once?
HMRC can be flexible. If you cannot afford to pay the full amount immediately, you may be able to set up a ‘Time to Pay’ arrangement, allowing you to pay in monthly instalments. You must be proactive in requesting this.
Is it better to just wait for HMRC to contact me?
No, this is strongly discouraged. An “unprompted disclosure” through the Let Property Campaign will always result in a lower penalty than a “prompted disclosure” made after HMRC has opened an investigation. By coming forward first, you are in a much stronger position.
Will I face criminal prosecution if I use the Let Property Campaign?
It is extremely unlikely. The Let Property Campaign is a civil facility designed to help landlords get their affairs in order. As long as you provide a full and accurate disclosure, HMRC will almost certainly not pursue a criminal investigation.