What is the Let Property Campaign (LPC)?

Almost 10 years ago HMRC launched a disclosure facility aimed at individuals who had received property income, in the UK or abroad, but had failed to disclose this in their tax returns. The Let Property Campaign (LPC) was designed to help landlords correct errors or omissions in their affairs on the best possible terms. The initial intention was for the LPC to remain open for around 18 months, but such has been its success that the facility is still open almost a decade later.

The Let Property Campaign offers a streamlined process to fast-track cases where a tax loss arises from letting property and applies where the income is received from residential (i.e. not commercial) property. If property is held in a Trust or company then the LPC cannot be used but other disclosure facilities are available for such cases.

Whilst the LPC is going to be appropriate in many cases, for the most serious cases (for example where the tax loss is particularly high; the undisclosed income spans multiple years or arises from multiple properties), then alternative disclosure facilities which offer greater protection to the taxpayer need to be considered. These include HMRC’s Code of Practice 9 (COP9) disclosure facility which is the only tax disclosure facility which offers immunity from criminal prosecution when a full disclosure is made. The LPC is expected to be the appropriate tax disclosure facility to use for Airbnb hosts who need to make a disclosure, and were contacted by HMRC in June 2023

How does the LPC work?

An online notification is made to HMRC informing them of an intention to make a disclosure under the LPC. On receipt of the letter confirming the taxpayer’s acceptance into the LPC HMRC allow 90 days for the taxpayer, or their advisor, to calculate the tax, interest and potential penalties due. Menzies approach is to also prepare and submit a separate disclosure letter to HMRC to explain the background and make representations on the taxpayer’s behalf.

The tax calculations can potentially go back up to 20 years depending on the circumstances. The nature of the underlying “tax offence”, i.e. whether it is an error in a filed return or whether no tax returns have been filed, as well as the behaviours giving rise to the loss of tax, will determine how many years to include in the disclosure.

What could go wrong?

The most common misunderstandings we come across when talking to landlords who need to make a UK tax disclosure are:

  • Mistakes calculating finance costs and being unaware of the rules that took effect from 6 April 2017 to restrict the amounts that could be claimed.
  • Being unaware of the Property Income Allowance and Rent a Room relief.
  • Misunderstanding the difference between revenue and capital expenditure, and how this has an impact on the calculation of tax due.

In the majority of cases mistakes will be made not through any deliberate intention, but the rules are complex and specialist advice is needed to ensure the correct amount of tax is paid.

But will HMRC ever find out?

HMRC obtain vast amounts of information from a wide variety of sources. This includes local housing associations; mortgage brokers and other lenders; estate agents, Land Registry and obtaining information on who if anyone is paying council tax in the property. HMRC will also analyse social media posts and other popular websites like Airbnb to search for properties being advertised as available to let.  

We are seeing HMRC renew their focus on landlords again starting with efforts to educate landlords in respect of their UK tax filing obligations. In December 2022 HMRC released a video aimed at landlords called “If I have income from property, how do I fill in my tax return?”. Clearly it is far better to get things right in the first place but in reality errors will be made by landlords, some accidently and some deliberately. The LPC can be used regardless of the underlying behaviours giving rise to a loss of tax.

It is prudent to assume HMRC will eventually find out and therefore by being proactive and making a voluntary disclosure, the individual will receive lower penalties and will be looked on more favourably by HMRC.

What happens if you do nothing?

If the individual waits for HMRC to find them, then they can expect to have an enquiry opened into their tax affairs. The downsides of adopting a “wait and see” approach include:

  • Not retaining control over the enquiry and facing uncertainty that can last many months or years.
  • Higher financial penalties for not taking the opportunity to make an unprompted disclosure under the LPC.
  • The risk that HMRC will start focusing on other aspects of your tax affairs, even if there are no other issues.

If you would like to discuss the Let Property Campaign or voluntary disclosures more generally, please contact Menzies’ Tax Disputes and Disclosures team below:

Call our free confidential hotline – 07813003194

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