What Happens If You Don't Declare Your Rental Income (UK)?

Renting out property in the UK can be lucrative but it also comes with an array of legal obligations. From routine property inspections to safety certificate renewals to, perhaps the most critical of these for landlords, ensuring they report all rental income to HMRC.

Failing to declare rental income can lead to substantial repercussions, including financial penalties and legal action, though the latter is generally reserved for instances of deliberate deception. 

This guide aims to shine a light on the potential penalty for not declaring rental income, how landlords can stay compliant, and how to declare rental income accurately to avoid issues further down the line.

Landlord Tip: Dedicated property management tools such as Landlord Studio can be a godsend for landlords, enabling you to remain tax compliant while minimising risks and maximising efficiency. 

What Is Rental Income? 

When you earn income from renting out a property, it qualifies as taxable income under the Income Tax Act 2007. In the UK, the tax system demands that landlords report this income to HMRC via a Self-Assessment tax return. Failing to do so can lead to hefty penalties at best and legal consequences at worst. 

No matter the scale of your rental property business, understanding the nuances of how to declare rental income is fundamental to your success, as it ensures you remain compliant and avoid potential fines. Ignorance of tax obligations is not a legal excuse, and HMRC can investigate unpaid taxes dating back up to 20 years under the Taxes Management Act 1970. 

Penalty for Not Declaring Rental Income (UK) 

Failing to declare rental income can result in severe penalties from HMRC. The penalty for not declaring rental income (UK) largely depends on how long the income has gone unreported and whether the failure was deliberate or accidental.

Types of Penalties

1. Late Filing Penalties:
   • £100 fine for missing the Self Assessment deadline (31st January for online submissions).
   • Additional penalties if you are more than three months late: £10 per day for up to 90 days.
2. Unpaid Tax Penalties:
   • Up to 30% of unpaid tax for careless mistakes.
   • Up to 70% for deliberate underreporting.
   • Up to 100% for deliberate concealment of rental income.
3. Interest Charges:
   • Interest accrues on unpaid taxes until the full amount is settled.

Example Scenarios

1. Negligent Mistake: If you accidentally fail to declare £5,000 of rental income, you could face a penalty of up to 30% (£1,500) in addition to the unpaid tax.
2. Deliberate Concealment: If you deliberately hide £10,000 of rental income, HMRC can impose a penalty of up to 100% (£10,000) of the unpaid tax.

Read the HMRC guide to penalties on undeclared income here.

How to Declare Rental Income to Avoid Penalties

Avoiding penalties is easy once you understand how to declare rental income correctly. Here are the steps you will need to take: 

1. Register for Self-Assessment: How landlords must register with HMRC for Self Assessment by 5th October following the end of the tax year in which they started renting out a property.‍
2. Keep Accurate Records: Maintain detailed records of all rental income and allowable expenses. ‍
3. File Your Self-Assessment Tax Return: Submit your Self-Assessment tax return by 31st January for online submissions. ‍
4. Pay the Tax Owed: Ensure you pay any outstanding tax by the same deadline (31st January).‍
5. Report Accurately: When declaring rental income, include all payments received from tenants, such as rent, service charges, and any additional fees.

Rectifying Missed Declarations Through the Let Property Campaign

If you wake up sweating in the night, and realise you have forgotten to declare rental income, you can go through HMRC’s Let Property Campaign, which allows you to rectify the mistake voluntarily. Being proactive and going through this official channel can help reduce penalties significantly.

Steps to Disclose Undeclared Income:

1. Notify HMRC: Inform HMRC of your intention to disclose undeclared income by filling out the Digital Disclosure Service form.
2. Submit Your Disclosure: Provide detailed information on the undeclared rental income, including any expenses.
3. Pay the Tax and Penalties: Settle the outstanding tax, interest, and reduced penalties as agreed with HMRC.

Benefits of Voluntary Disclosure

• Reduced Penalties: Typically lower than if HMRC discovers the omission.
• Peace of Mind: Avoid the stress of a formal investigation or prosecution.

Related: Understanding Tax On Rental Income: A Guide For Landlords

Common Mistakes Landlords Make When Declaring Income

1. Misclassifying Expenses: Repairs are deductible, but improvements are not.
2. Forgetting to Record Rental Income: Ensure all payments (e.g., rent, fees) are recorded promptly.
3. Missing Deadlines: Late filings incur automatic penalties.
4. Mixing Personal and Rental Finances: Use a separate bank account for rental transactions. Landlord Studio can sync your transactions automatically.

Frequently Asked Questions

1. What Is the Penalty for Not Declaring Rental Income UK?

The penalty for not declaring rental income (UK) can range from a 30% fine for careless mistakes to a 100% penalty for deliberate concealment, plus interest on unpaid tax.

2. How to Declare Rental Income for the First Time?

Register for Self Assessment, track your rental income and expenses, and file a tax return by the 31st of January during the following tax year. 

3. Can HMRC Investigate Old Rental Income?

Yes, HMRC can investigate up to 20 years of undeclared income if they suspect deliberate tax evasion.

4. How Can Landlord Studio Help with Declaring Rental Income?

Landlord Studio helps landlords track income and expenses, scan and digitise receipts, generate financial reports, and set reminders for deadlines, making it easier to stay compliant.

Simplify Your Finances with Landlord Studio

The administrative workload that comes with managing rental properties can quickly become overwhelming, or quite simply, a pain. Landlord Studio has been designed to remedy this problem by streamlining the entire process of property management. It deals with every element of property management from tracking income to managing expenses, and staying on top of tax regulations.

Not only does this make life easier for landlords, but it also ensures that you remain compliant with HMRC requirements at all times. Here’s some areas in which Landlord Studio can be of assistance:

• Automated Bank Feeds: Sync transactions with your bank account.
• Receipt Scanning: Snap photos of receipts and store them digitally.
• Custom Financial Reports: Generate profit and loss statements, expense summaries, and more.
• Compliance Tools: Track EPC certificates, gas safety checks, electrical safety, and receive automated reminders.
• MTD Preparation: Stay compliant with Making Tax Digital through Xero integration.

If you feel like you’re drowning in paperwork, or you want to know without a shadow of a doubt that you are tax compliant, Landlord Studio can help you simplify your operations so you spend less time second-guessing yourself. Create your free account today to discover how Landlord Studio can help you streamline you rental property income and expense management this tax season.

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