HMRC Wants More Information About Your Rental Income

HMRC has quietly launched a consultation that could significantly increase the amount of information it receives about residential landlords.

Whilst the proposals are aimed at letting agents and tenancy deposit schemes, the real target is rental income itself. The direction of travel is clear. HMRC wants to know who owns rental properties, how much rent is being received and whether that income is being correctly reported on tax returns.

A Move Towards “Property Income Reporting”

Currently, HMRC can request information from letting agents where it believes there may be a compliance risk. However, this is often a manual and time-consuming process.

The new proposals would introduce a regular reporting regime, requiring third parties to provide information directly to HMRC.

The consultation suggests that HMRC could receive details such as:

• The identity of the landlord.
• Property addresses.
• Taxpayer reference numbers.
• Tenancy information.
• Rental income received.

In effect, HMRC would be able to build a much clearer picture of the UK’s residential rental market.

Why is HMRC Doing This?

The answer is simple: Compliance.

HMRC believes that some landlords are not declaring all of their rental income or, in some cases, are not registered for Self Assessment at all.

By receiving information directly from third parties, HMRC will be able to cross-check information already reported on tax returns.

This follows a trend we have seen for many years.

Employers report salaries through PAYE. Banks report savings interest. Investment providers report investment income. HMRC now appears keen to apply a similar approach to residential property income.

Does This Mean HMRC Will Know My Rental Profit?

No. One important point often overlooked is that the proposals appear to focus on rental income rather than rental profit.

Whilst a letting agent may know how much rent has been collected, they are unlikely to know all of a landlord’s expenses.

For example:

• Mortgage interest
• Repairs and maintenance
• Insurance
• Professional fees
• Capital expenditure

These costs may be incurred directly by the landlord and never pass through the letting agent. As a result, landlords will still need to prepare proper rental accounts and ensure all allowable deductions are claimed.

What Could This Mean for Landlords?

For most compliant landlords, very little should change. However, it does mean HMRC is likely to have far greater visibility of rental income than ever before.

Where rental income reported by agents differs from the figures shown on a tax return, questions may be asked. Similarly, where HMRC receives information indicating a property is being let but no tax return has been submitted, an enquiry could quickly follow.

The proposals therefore represent another step towards a tax system driven increasingly by third-party data and digital reporting.

Our Thoughts

The consultation does not introduce any new taxes and it does not currently require detailed reporting of expenses. However, it does provide a clear indication of HMRC’s future intentions.

For many years, rental income has remained one of the few common sources of income that HMRC does not routinely receive from third parties. If these proposals proceed, that position could change significantly.

Landlords would be wise to assume that, in the future, HMRC may already know far more about their rental income before a tax return is ever submitted.

If you own residential investment property and would like to discuss your tax position, our property tax specialists would be pleased to help.