Let Property Campaign.

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    Let Property Campaign.

    Hi all,

    A friend of mine has been renting out a flat since 2004 and has not declared any of the income to HMRC in all that time.

    She wants to come clean and pay the accumulated income tax she owes by making a non-prompted disclosure using the Let Property Campaign system.

    Having read the blurb ( https://letproperty.campaign.gov.uk/ ) it seems a relatively simple process. Does anyone have any experience of using this facility? If so, what are your impressions?

    I have a small BTL portfolio myself and am used to preparing tax returns so I said I will help her and have a couple of questions to ask:

    The flat was rented as 'furnished' from 2004 til May 2015, when it became an unfurnished let. Can the old 10% of rental income wear & tear allowance be applied over the first decade of the letting period?
    If so, can replacement relief be claimed post mid 2015 when the flat became an 'unfurnished' let?

    The lady in question has documentation detailing costs regarding an eviction which was necessary in 2006. This resulted in a large loss in FY 06-07 which I intend to 'carry forward'. I imagine the 06-07 loss will not be fully covered for at least the three subsequent years. This would be allowable if using the self assessment system, will it be allowable using the Let Property Campaign?

    Overall, the lady has comprehensive documentation. I.E. Every P60 bar one, almost all the letting agent's invoices, tenancy agreements and notices, and most of the mortgage provider's statements of interest paid. Even for those statements of interest paid which are missing, letters exist which make it relatively simple to generate an accurate estimate of interest paid. Given this, and her commitment to "telling, helping and giving", I imagine that she will qualify for a penalty towards the lower end of that stipulated for unprompted, deliberate but not concealed disclosures.

    https://www.gov.uk/government/public...-notify-ccfs11


    As the penalty is to be self-selected and justified, I would say 30% across all years would be correct.

    All thoughts, comments, observations and suggestions are welcome,

    Chris.

    #2
    The whole idea of the campaign is to collect the tax and not penalise people who come clean too much.

    Personally I'd use an accountant, because I don't think HMRC can normally go back much further than six years, so there's possibly a trade off of six years tax plus possible hefty penalties versus 17 years tax and lower penalties.

    Some of the issue is going to be that with records that good, this isn't going to look like an omission being corrected, this is someone who knew perfectly well that tax was due and decided not to pay it.

    The contemporary tax rules apply, so, yes while the 10% allowance applied, it can be used.
    Losses can be carried forwards, as far as I know, the let campaign doesn't change the basic tax computations.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Has your friend lived in the property at any time ?

      Does your friend's annual income from " job plus rental property" exceed the annual personal allowance, during each of the last 6 years.?

      Does taxable income come under the 20% tax rate each year?

      Comment


        #4
        Thanks for the replies.

        JP, I think my friend wants a clean break with HMRC rather than fighting it to minimise her tax bill as you suggest she could do. In any case, what with higher mortgage interest rates and her eviction costs in the early years, the tax liability prior to around 2010 will be minimal and even less now you have confirmed the 10% wear & tear allowance can be claimed. BTW, while on the subject, am I right in thinking that a replacement bathroom and a fitted oven and hob (both receipted) can still be claimed for additionally to the wear & tear allowance?

        Gordon, Yes. She lived in the property (when first purchased) for approximately 20% of the time she has owned it and will therefore be claiming 20% + 9 months CGT relief.

        Also yes. In all 17 years she has exceeded her personal allowance. In most of the years she has a 20% liability but has a 40% liability in a couple of the last 6 years.

        Comment


          #5
          Hi again,

          The deed is done. My friend registered for the Let Property Campaign scheme an hour ago.

          The next step is HMRC sending her a disclosure number by post within 14 days.

          As I am trying to sort out her tax liability over the past 16 odd years, I'd appreciate some help regarding how the 10% wear and tear allowance should be calculated.

          In one ancient forum I've been reading, a poster claims to have got this definition from HMRC website:

          'The wear and tear allowance is calculated by taking 10% of the net rent received for the furnished residential accommodation. To find the ‘net rent’ you deduct charges and services that would normally be borne by a tenant but are, in fact, borne by the taxpayer (for example, council tax, water and sewerage rates etc).'

          This brings to mind two questions:

          1) Does net rent recieved mean the amount that the letting agent recieved or the amount that my friend recieved after the letting agent took his 10% cut?

          2) Does 'services that would normally be borne by a tenant but are, in fact, borne by the taxpayer (for example, council tax, water and sewerage rates etc)'. include any maintenance or Ground Rent fee such as are payable by the taxpayer (landlord)?

          One respondant seems quite emphatic:

          'The allowance is calculated as 10% of the gross rents, less only costs that the landlord has met which would normally have been met by the tenant. The landlord will normally pay for accountancy/letting fees etc so although these are deductible in computing the taxable profit they are not deducted for the purposes of calculating the allowance. As I think has been made abundantly clear (quite why some find it so difficult to understand, I don't know) the items that are deducted in computing the allowance are few and far between - Council Tax, utility bills etc (for the avoidance of doubt, only where the landlord has paid them instead of the tenant).'

          Obviously, If this guy is correct, this is good news for my friend as she used an agent throughout and the only flat related bills she paid were to the maintenance company and Ground Rent.

          The Let Property Campaign specifically states that it will not provide tax advice, only advice on how to use the process, so can anyone direct me to an authorotive source which would confirm the above?
          HiI understood that 10% wear and tear on profit is income less costs i.e. all costs relating to the property (Mortgage Interest, Management costs, rep

          Comment


            #6
            The wear and tear allowance was 10% of the rent before any deductions.

            The only exceptions were always poorly understood and were always a little odd.
            You had to deduct items which would normally be borne by the tenant but, for some reason, weren't.
            So, if the landlord included utility bills in the rent, that would be deducted, if the landlord paid the council tax (and if the tenant were actually liable) that was deducted.
            Other allowable expenses, like agents fees etc weren't deducted.

            As very few landlords paid their tenant's council tax or utilities, this was a feature more often discussed than used.

            The agents fees (as an example) would be an allowable expense as well as the wear and tear allowance.

            During the time that the wear and tear allowance was in operation, a landlord could opt out of the scheme before their first tax return and opt to use the actual expenses (more or less as now), but then couldn't change that choice.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              Seems pretty clear there JP. I'll go ahead and alter my calculations

              One more thing, My friend had a bathroom refurb and a built in oven and hob replaced during the period when the flat was let furnished. I'm pretty sure that these costs can be detucted in addition to the 10% W&T, but could the bathroom refurb be put down as a capital expense instead? £3,500 relief at 28% is a fair bit more than at 20%

              Comment


                #8
                The 10% was for furnishings, so built in stuff should be ok to claim.
                The bathroom refurb depends on what was done if it was simply a replacement, it's maintenance, if it was a significant upgrade, it's likely to be part capital/part maintenance.
                If it's a new bathroom, it's probably capital.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  Thanks JP, that's clear. I'll put the bathroom in with the income tax then. I guess it's much of a muchness anyway as the associated reduction in interest and fine will probably equal out.

                  I have one last question, if you'd be so kind.

                  During the year she had to make the eviction, my friend lost 6 months rent when the tenant lived there but just didn't pay the rent. Given that that tenant caused more wear & tear than any other, it seems ironic that my friend should be limited to W&T calculated on ony 6 months' rental payments. Could it be argued that a full year's rent was actually due and that that should be the figure used to calculate that year's W&T allowance?
                  Last edited by armour; 17-09-2021, 09:19 AM. Reason: grammar

                  Comment


                    #10
                    armour - Sorry, I don't know.
                    It might depend on whether you're accounting on the cash basis (in which case I suspect not) or the accrual basis (when it's possible).

                    But it's not something I ever got involved with when the W&T allowance existed, and all of the practical guidance related to it is either gone or unreliable.
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      Fair enough. Thanks for your advice. It is on cash basis.

                      I guess it would only save her 50 odd quid anyway, maybe less than £80 once the fine and interest is added. I guess she'll have to swallow that.
                      Once again, thanks JP and Gordon for your help.
                      Chris

                      Comment


                        #12
                        See..
                        https://www.landlordzone.co.uk/news/...erty-campaign/

                        HMRC claws back £254 MILLION from landlords via Let Property campaign
                        Well done HMRC..

                        None of my business, and obviously not in anyway a criticism of anybody, but If I had had a friend who I found out had been fiddling tax for 16 years they'd no longer be my friend.

                        Yes of course I have faults.

                        Best wishes to all
                        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

                        Comment


                          #13
                          Not much of a friend then are ya?

                          Comment


                            #14
                            Originally posted by armour View Post
                            Not much of a friend then are ya?
                            Thank you for your kind words.
                            I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

                            Comment


                              #15
                              Originally posted by armour View Post
                              Not much of a friend then are ya?
                              so you approve of tax evasion ?

                              Comment

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