The Renter Reform Bill grants HMRC access to landlord information, creating a “landlord database.” Will it lead to increased tax investigations? Find out more on today’s Tax Tip.
We will cover:
- How the Bill will collect data about landlords
- Why you should correct your tax situation
The Renter Reform Bill was recently introduced in Parliament.
This means that HMRC will now have access to information about landlords who rent out properties in the private rented sector.
The bill includes the creation of a “landlord database” which will provide HMRC with unprecedented access to information about landlords.
While it’s not clear if HMRC will have full access to all the information submitted by landlords, it’s reasonable to assume that they will use this publicly available data to make sure landlords are fulfilling their tax obligations.
This new data, along with Land Registry records and HMRC’s Connect database, will be combined for HMRC’s use.
We expect that once HMRC allocates enough resources to properly examine this data, they will increase their tax investigations in this area.
So, what does the bill entail?
Although it doesn’t directly relate to taxes, the bill introduces some new obligations for landlords:
1. Residential landlords will need to register on the landlord database.
2. A registration fee will be required.
3. Landlords and properties will be assigned unique identifier numbers.
4. Landlords cannot advertise a property for rent unless they are registered as a landlord (or prospective landlord) and the property has been registered.
5. Landlords who market a property for rent without the appropriate registration will face fines.
Existing residential landlords will likely be given a deadline to register online in the future.
The information required from landlords is quite detailed and will provide significant information to HMRC and other organisations.
Why is this important for taxes?
Landlords have faced increasing taxes since the introduction of the 3% Stamp Duty Land Tax (SDLT) surcharge on additional properties in 2016.
From 2017 to 2020, mortgage interest relief for sole traders and partnership landlords was phased out, resulting in some landlords being taxed on “phantom profits” (although they receive a basic rate tax deduction).
As a result of these changes and the growing number of property owners, many landlords miscalculate the taxes owed on their rental income, and some don’t report or pay tax on rental income at all.
When HMRC launched the “let property” campaign in 2013, they estimated that landlords were failing to declare and pay around £500 million in taxes annually.
However, since its introduction, the campaign has only accounted for £184 million in recovered taxes, leaving £316 million unaccounted for, assuming HMRC’s estimates were accurate.
Once HMRC obtains information from the landlord database, it will be easier for them to identify landlords who haven’t reported rental income or capital gains from property sales.
This may prompt HMRC to encourage landlords to disclose this information.
In fact, we know that HMRC is already comparing self-assessment tax returns with data obtained from the Tenancy Deposit Scheme, which prompts taxpayers to correct their tax filings for unreported rental income.
What should you do now?
We have helped many clients disclose unreported income and gains to HMRC, and we strongly advise landlords to correct their tax situation voluntarily before being contacted by HMRC.
If HMRC prompts the taxpayer to report the income, the penalties will be harsher, as the disclosure would no longer be considered voluntary.
In short, it’s best to take action before being forced to.
Making a disclosure will give you peace of mind, and voluntarily correcting your tax position puts you in control and provides the best chance of negotiating lower tax penalties.
If you believe you need to get your tax affairs in order, please don’t hesitate to contact us.
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