HMRC nudge Landlords to check they have declared all their rental income

David Conway, Director, Professional Practice and Private Clients

If you are a residential landlord, you may soon receive a so-called “nudge” letter from HMRC, if they think that the gross rents reported on your Tax Return are not in line with the size of your tenant’s deposit held with the Tenancy Deposit Scheme (a government approved body holding tenant deposits).

Specifically, we understand that HMRC are going to target their new round of letters on those landlords where the reported rents on the 2020/21 Tax Return are not in keeping with the deposit. This will likely be on the assumption that the maximum deposit allowed has been taken (typically five weeks rent if tenancies are less than £50,000 a year, or six weeks if it is more), and a full year’s gross rent calculated from that.

It remains to be seen how well targeted these letters are.  There could be a number of reasons why your reported rent may be lower than the amount HMRC calculate, such as periods where the property is vacant or your tenant has not paid you. However, it is important that you review your position, particularly as there would likely be higher penalties if you do not respond to such a letter and HMRC subsequently discover that rent has been under reported.

We recommend that now would be a good time for you to review the gross rents you declared on your 2020/21 Tax Return to ensure that it is correct and, where applicable, compare it to any deposit held by the Tenancy Deposit Scheme. If there is a genuine reason why your rents may be lower than expected, you can be prepared in case you do get such a letter.

If you need assistance in any of this, such as with checking the figures, or if you think you have found an inaccuracy either before or after you receive a HMRC letter, please get in touch with Mark Stemp or your usual Crowe contact.

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Mark Stemp
Mark Stemp
Partner, Private Clients