If you've recently received a letter from HMRC asking about your property income, you're not alone. HMRC has been sending targeted "nudge letters" to landlords as part of their ongoing Let Property Campaign, designed to help landlords get their tax right. These letters often arrive because HMRC has received information from sources such as tenancy deposit schemes, online booking platforms like Airbnb, letting agents, or other third parties that suggests you may have undeclared rental income.
Understanding HMRC's Data Collection Methods
HMRC can request information from tenancy deposit schemes, and if someone is registered as a landlord with one of these schemes but doesn't declare rental income via Self-Assessment, they are likely to receive a letter asking them to pay tax and penalties. The taxman uses sophisticated methods to identify potential non-compliance:
- Tenancy Deposit Scheme Data: If HMRC learns that you have taken a deposit of £1,500, it will assume you have a rental income of £300 per week or £15,600
- Online Platform Information: Data from Airbnb, VRBO, and other short-term letting platforms
- Land Registry Records: Property transactions and ownership details
- Financial Institution Notices: Bank records and mortgage applications
- Anonymous Tips: Reports from the public about undeclared properties
What HMRC's Letter Typically Contains
The nudge letter will include a request to complete a Certificate of Tax Position within 30 days of receipt. The letter typically presents three options:
- Option 1: The landlord has declared property income but not the full amount
- Option 2: All the landlord's tax affairs are up to date
- Option 3: The landlord has not declared any property income
Landlords who select either option 1 or 3 will then be expected to bring their affairs up to date by making a disclosure.
Immediate Steps to Take
Don't Ignore the Letter
If landlords choose option 2 or do not respond, HMRC will likely decide to continue their own inquiries and test the information they hold. If HMRC subsequently discovers that there are likely to be undeclarations of property income, the consequences are likely to be a lot harsher for the landlord.
Review Your Tax Position Thoroughly
Before responding, conduct a comprehensive review of your rental income history. Consider:
- All properties you've owned or let over the past 20 years
- Any periods where you may have forgotten to declare income
- Whether you've correctly calculated allowable expenses
- If you've properly reported capital gains from property sales
Seek Professional Advice
Given the complexity and potential consequences, it's advisable to consult with a qualified tax adviser or accountant who specialises in property taxation before responding to HMRC.
The Let Property Campaign: Your Route to Compliance
The Let Property Campaign is for landlords who owe tax through letting out residential property in the UK or abroad. If you're a landlord and you have undisclosed income, you must tell HMRC about any unpaid tax now. You'll then have 90 days to work out and pay what you owe.
Who Can Use the Campaign
You can report previously undisclosed taxes on rental income to HMRC under the Let Property Campaign if you're an individual landlord renting out residential property, including if you live abroad or intend to live abroad for more than 6 months and rent out a property in the UK, as you may still be liable to UK taxes.
Timeline for Disclosure
You must tell HMRC of your intention to make a disclosure as soon as you become aware that you owe tax on your letting income. You'll then have 90 days to work out and pay what you owe.
Penalties and Consequences: What's at Stake
Penalty Structure
Landlords who receive a nudge letter are likely to be offered a discounted penalty in return for declaring any undeclared rental income over the last 20 years. Fail to declare and you can be hit with penalties ranging between 10% and 100% of rental income, plus interest.
Assessment Periods
The number of years HMRC can assess depends on your circumstances:
- Maximum 4 years: If you registered for Self-Assessment by the appropriate deadline and have taken care to make sure your tax affairs were correct but you have still paid too little
- Maximum 6 years: If you registered for Self-Assessment by the appropriate deadline but you have paid too little because you were careless
- Maximum 20 years: If you failed to register for Self-Assessment by the appropriate deadline
Criminal Investigation Risk
If you do not make a disclosure now, and HMRC finds out later, you could get higher penalties or face criminal prosecution. Where lost revenue is likely to exceed £500,000, the case is probably going to be dealt with by HMRC under Code of Practice 9 (COP 9), and failure to deal with COP9 cases correctly could lead to Criminal Prosecution.
Making a Disclosure: The Process
Step 1: Notify HMRC
Contact HMRC immediately to notify your intention to make a disclosure under the Let Property Campaign.
Step 2: Gather Information
Although you have 90 days from the date of your notification acknowledgement to make your disclosure, HMRC recommends that you start gathering your information and records as early as possible.
Step 3: Calculate Your Liability
You'll need to work out:
- Total rental income for each year not previously declared
- Allowable expenses and deductions
- Tax owed for each year
- Interest charges
- Penalties
Step 4: Submit Payment
Unless you've contacted HMRC to agree additional time to pay, you should send your payment at the same time as you send your disclosure. HMRC should receive it no later than the 90-day deadline given on your notification acknowledgement letter.
2025: The Ideal Time to Come Forward
From April 2026, as part of its modernisation of the UK tax system, the Government plans to introduce Making Tax Digital (MTD) for landlords with qualifying income over £50,000. This MTD timetable means that 2025 is the ideal opportunity for landlords to make a disclosure under the Let Property Campaign and ensure their tax affairs are up to date.
What Happens After Your Disclosure
HMRC will review all disclosures. If after those checks are completed HMRC decide to accept your disclosure, they will send you a letter accepting your offer. If HMRC cannot accept the disclosure they will contact you.
Warning: After their enquiries if HMRC finds that a disclosure is materially incorrect they will look to charge significantly higher penalties. It's also possible that in exceptional circumstances an incomplete disclosure may be considered under HMRC Criminal Investigation Policy.
Key Takeaways
- Act Quickly: Don't ignore HMRC letters – the consequences of non-response are severe
- Seek Professional Help: The complexity of property tax rules makes professional advice essential
- Be Comprehensive: Ensure your disclosure covers all periods and all income
- Make Payment Arrangements: If you can't pay immediately, contact HMRC to arrange payment terms
- Keep Records: Maintain detailed records of all rental income and expenses going forward
Common Landlord Tax Errors to Avoid
Many landlords make honest mistakes due to misunderstanding the rules. Whether your errors were due to misunderstanding the rules, or you deliberately avoided paying the right amount, you should notify HMRC now. Common errors include:
- Not declaring income from occasional lettings
- Incorrectly calculating mortgage interest relief
- Failing to declare income when moving in with a partner and renting out your own property
- Not understanding joint ownership tax implications
- Misunderstanding furnished holiday let rules
Conclusion
Receiving an HMRC letter about undeclared rental income can be daunting, but it's also an opportunity to regularise your tax affairs under the most favourable terms available. In its first 10 years, the Let Property Campaign's total tax yield was over £236m, with more than 45% of that from the three years leading up to 2022/23, showing that many landlords are taking advantage of this opportunity.
The key is to act promptly, seek professional advice, and make a complete and accurate disclosure. With Making Tax Digital for landlords on the horizon, 2025 represents the perfect time to ensure your property tax affairs are fully compliant and up to date.
Remember: HMRC wants to help landlords get their tax right, and the Let Property Campaign provides the framework to achieve this with minimal penalties and maximum certainty for your future tax compliance.