HMRC is targeting residential landlords with ‘nudge letters’

HMRC is targeting residential landlords in its latest ‘nudge campaign’ that it suspects are not declaring their full rental income, warns tax advisers Kreston Reeves.

The campaign comes in advance of Jeremy Hunt’s first Autumn Statement and rumours of a further attack on residential landlords with higher rates of Capital Gains Tax (CGT) on property disposals and higher rates of National Insurance.

George Guilherme-Fryer, a director in the firm’s tax disputes team, said: “These nudge letters are widely targeted at individuals or businesses based on information received, primarily from other governmental departments, banks or, in this case, the tenancy deposit scheme.

“Landlords in England are limited to taking a five weeks’ deposit for new and renewed tenancies with rent under £50,000 a year or up to six weeks if the annual rent is £50,000 or more.

“As most landlords take the maximum deposit, it is not difficult for HMRC to calculate the expected rental income which should be included in a tax return.”

‘HMRC will assume an approximate rental income’

He added: “For example, if the deposit held with the tenancy deposit scheme is £1,000, five weeks of £200, then HMRC will assume an approximate rental income of £10,400 annually, or £200 per week.

“These latest nudge letters tend to include a statement saying that HMRC has received relevant information, suggesting the landlord review their tax position, and including a suspiciously simple certificate of tax position to be completed and returned.”

Mr Guilherme-Fryer highlights that the letter will not take into account vacant periods or reductions in rent and will often mean that no action is required.

No obligation for a landlord to respond

However, he says that there is no obligation for a landlord to respond or to sign the certificate of tax position.

Mr Guilherme-Fryer warns: “But landlords are advised to review their tax position if such a letter is received to identify if any disclosures are needed.

“If they are ignored and it is later found that tax is due, it may lead to an investigation and potentially a criminal prosecution.”