HMRC frequently focuses on property transactions as part of its work to check that taxpayers declare the correct amount of income and gains. HMRC continued its focus in this area in late 2020 with nudge letters targeted to prompt taxpayers to review prior year returns.
HMRC’s Let Property Campaign provides landlords who owe more tax from the letting of residential property, in the UK or overseas, an opportunity to rectify mistakes in previous years’ tax returns and bring their tax affairs up-to-date. Whilst this campaign focuses on undisclosed rental profits, nudge letters issued by HMRC late in 2020 indicate some people may also need to tell HMRC about gains on the sale of properties. You can read the HMRC campaign page here.
Although a ‘nudge’ letter does not necessarily mean a taxpayer’s affairs are definitely incorrect, it indicates that a disclosure may need to be made. This is because HMRC issues these letters if it holds information suggesting a tax return is incorrect or was not filed when it should have been. HMRC decides who to send nudge letters by comparing tax return entries to other data from sources such as the Land Registry or other government bodies (for example, rents paid from benefits administered by the Department for Work & Pensions).
Recent letters issued by HMRC and designed to prompt disclosure include:
- Individuals’ disposal of a residential property which is not their primary residence
These letters are sent to individuals who appear to have failed to tell HMRC about the sale of a residential property in the 2018/19 tax year that was not their primary residence. This is either because there is no such disposal on their tax return or they did not file a tax return.
- Gains on residential property disposals
HMRC is writing to taxpayers who might have incorrectly declared a sale of residential property in 2018/19 as attracting a lower rate of Capital Gains Tax (CGT) rather than as a residential property sale at a higher CGT rate.
If any taxpayers identify mistakes on prior years’ tax returns in connection with property transactions – whether rental or sales – it is important to rectify those errors without delay and before HMRC opens formal enquiries. As part of this process, the source of funds used to buy properties should be checked to ensure no additional tax on those monies needs to be disclosed at the same time. Unless the issues were fully corrected via amended 2018/19 returns filed before 31 January 2021 then a disclosure will need to be made to HMRC. This could be via the Let Property Campaign or another route depending on the nature of the mistakes and why they occurred.
Disclosures relating to profits or gains arising in connection with properties located abroad may be made via the Worldwide Disclosure Facility (WDF) too. HMRC is analysing data shared by over 100 countries under the CRS (Common Reporting Standard). We are seeing many HMRC nudge letter relating to overseas holiday homes and rental properties outside the UK. Declaring offshore income and gains is a complex area of tax and expert advice should be sought.
We encourage any taxpayer who needs to bring their tax affairs up to date in relation to rental income or property sales to contact BDO’s Tax Dispute Resolution team to make a voluntary disclosure before HMRC opens an investigation.
Call our tax dispute resolution helpline 0800 0113 451
Call our confidential Tax Dispute Resolution Helpline for a no obligation conversation with one of our team to discuss your tax problem and see if we can assist.