UK Landlord Forum / Life

Hello,

I really need some advice. 5 years ago myself and husband became accidental landlords - we couldn't sell our flat as it was 30k in negative equity so rented it out and bought somewhere with deposit help from parents. We have had a couple of tenants no problem and use a lettings agency. About 6 months ago it dawned on us we should have been paying income tax since it was rented out! Even though the amount we get from rent after all deductions doesn't fully cover mortgage. So help what do we do? Declare the last 5 years? Start afresh now and hope they don't look into it? Say nothing? Also I now work part-time on a much lower salary so if deeds etc all transferred to me would it mean that we would pay less tax. I think we need to speak to an accountant but are they legally obliged to report you to HMRC? Hope someone can advise...thanks!

I advise you to pick up the phone to HMRC and declare it yourself. It's infinitely better than them catching you. It will be an uncomfortable conversation, for sure, but you will have some tax to pay. Remember that it's income tax, not profit tax.

You don't need an Accountant... the sums are simple, but it might help.

If you do nothing and they find out then it will be much worse... it could be a big bill, with added penalties and no leeway to pay it. Try to work out what you think it might come to and prepare yourself.

Hi Meekat
The old it only dawned on us after 5 years chestnut eh ?? hahaha
But seriously, I fully endorse what Hippo has said. But I also feel I should point something else out. You say that the rent doesn't fully cover the mortgage after other expenses. I think what Hippo was getting at when he mentioned income tax not profit tax is this. If you have a repayment mortgage as oppose to an interest only mortgage, then only the interest part is tax deductable. In other words the mortgage plus other expenses may well be more than the rent but you are probably still going to owe some tax. Tell them. Soon. The longer you leave it the more you will owe. The sooner you tell the revenue the sooner you will sort it out and the worry gone.

The HMRC already have a scheme for folks like you (seriously though you didn't know you had to pay tax?? do you live on the moon?)
Start here:
https://www.gov.uk/let-property-campaign

(I hope you kept all the receipts, but maybe in the low gravity environment you live in they simply floated away) 

You will still be liable to a fine for not paying tax but if you are able claim sufficient expenses the fine will be quite small as its based on the amount of tax you owe.
A friend of mine did the same thing (although I suspect he knew he was supposed to pay tax) he however could show he made no income above expenses and so his fine was simply for not submitting a self assessment - small.

I suspect though that you probably don't even know what is an allowable deductible expense, so whilst the calc is simple if you neglect to make the appropriate deductions then you may pay more tax than you need and consequently a greater fine.

Do some research - it's not hard.

Best of luck

Thank you to those who have responded in a constructive manner. We never entered this as a business arrangement the mortgage providers nor the letting agents ever mentioned anything about tax call us naïve but there you go! OK I will bite the bullet. Do you normally have a bit of time to pay? Of course we receipts etc so hopefully it can get sorted out. I expect the amount to be taxed on will be about £300 a month but that is going to add up over 5 years *gulp*I've been reading up and really hope this new tax system Osbourne is trying to introduce doesn't make it!

Good.

Gotta pay our taxes. Being naïve or ignorant, unfortunately, is not an excuse... if it was I would be a lot richer.

If you could come back and let us know how it goes... it will be useful information for the forum as a whole.

I know and I could kick myself. I certainly will. thanks!