Error with declaring joint rental income

[aquaalfa]

My wife and I jointly owned a property for 8 years which was predominantly occupied only by our son whilst at university and subsequent employment with some rental income from letting out the spare room in the 1st 3 years although a loss was also generated which was carried fwd. He was never charged any rent.

This property was sold last year and I have worked out my CGT liability on my SA form.

We bought another property in 2006 for our daughter whilst she was also at university and we rented out the 2nd bedroom there from day 1 and have continued to rent both rooms after she left that city.

I have declared the rental profit (or loss) each year on my SA and ticked the box for joint ownership. However my wife is employed, paying basic rate tax through PAYE, and has never done a SA. Hence she has never paid any tax on the rental income!
Obviously she has now to pay her share of the CGT but we are unsure how to deal with the undeclared rental income over the years. Her total amount (50%) is about £4500 as there were losses some years set against later profits.
It has just never been thought about each year - I do my SA, pay what's due and an SA form for her has just been overlooked. Now paying the CGT has brought it into focus.
When she does an SA this tax year to declare the CGT, how do we account for the old rental income?
Will there be penalties, interest etc? How should we proceed - phone, see someone at local tax office?

Any help would be appreciated, thanks.

[Peter D]

"I have declared the rental profit (or loss) each year" I assume you mean you declared your 50%. When you purchased your first rental property you are supposed to inform HMRC you are landlords and you would both be issued an SATR at the appropriate time. You need to inform HMRC of the error and put together rental accounts for the periods concerned and indicate to HMRC the size of the issue up front. Assuming there is a profit then there will be some penalties but it should not be too bad.
Did you apportion the losses, as renting out a property at an under market rent, i.e. free to your son and later your daughter, connected persons, inhibits claiming a loss associated to that propertion of the rental property. They may not pick up on that aspect of course. Regards Peter

[aquaalfa]

Thanks, Peter. I have declared and paid my 50% each year and, yes, I did apportion costs to half when the kids were in their flats. When my son was on his own for 5 years, there was no rental income so I didn't do the SA property pages - I had ticked the box saying rental income had ceased. However we subsequently bought the other flat for my daughter and rental income started again on that property only, so 50% has been declared and paid each year by me.