Undisclosed rental income

by **advice needed** on Thu Nov 19, 2009 11:22 pm

Hi, my partner has a property that is rented to a private tenant.

I has come to light that over the last 5 years (since owning property) that the rental income has not been disclosed to the HMRC.

My partner wishes to declare this to the HMRC, pay all tax owed but is petrified about being dismissed if their employer learns of this (as they work for the police force), their health is suffering badly because of this - will their employer find out about this or can it be settled without their knowledge.

We are both in the 20% tax bracket - the total owed is approx £5000

by **Trevor Scott** on Sat Nov 21, 2009 5:43 pm

Who said you owed £5,000? How is that calculated?
What was the rental income and expenses for each year?
Is there a mortgage? What is interest?
Please confirm it is an entire house or flat that is rented out.

by **robbob** on Sun Nov 22, 2009 11:38 am

Hello advice

You partner should seek appropriate advise from her union / solicitor / appropriate legal party as to what the implications are as far as the employer is concerned.
Normally the revenue will not get involved in passing info onto employers or third parties.
Obviously if she does need to inform her employer it would be best to come clean rather than hope they do not find out.

As Trevor mentions there may be expenses that can reduce the amount of income that is liable to tax - particularly if there is a mortgage on the property or it is rented out furnished.

by **wamstax** on Fri Nov 27, 2009 7:26 pm

Hi there
Don't let us get carried away with whether the employer will find out or not..... The HMRC operates under a strict code of confidentiality and any member of staff divulging personal tax details of a taxpayer (except in very limited and particular situations) would be guilty of breaching such confidentiality clauses of their contract. Result if found out severe reprimand and/or possibly dismissal.

In any case - apart from penalty situations - these matters are civil "crimes" ranging from the simple mistake - some of which could be innocent errors e.g. your partner thought that they were making losses every year but it turns out to be a small profit after disallowing items that he thought were allowable - through to simple negligence (failign to take the actions a reasonable man would be expected to have taken to ensure that his tax liabilities were dealt with correctly.

I certainly would not pay a visit to any union rep - and I have certainly met soem very good ones in past years - as clearly if you have any concerns you are potentially contibuting to station gossip or leak.

lastly I think that from your partners own peace of mind he/she should review the terms of their contract of employment as to notifiable offences. I doubt if tax evasion is notifiable although I am aware that tax evasion fell under the provisions of the money launderign act 2000.

However can I just say that also for his/her peace of mind the sooner that the matter is raised with HMRC the sooner it will be resolved voluntarily. Into the bargain a spontaneous and unsolicited disclosure to HMRC can bring its own rewards in the form of lower penalties.

by **advice needed** on Wed Dec 02, 2009 12:07 am

thanks for the replies

The sum of £5K was just a rough estimate
Income is £4600 per yr (partner on basic rate tax) - so 22% of £4600 x 5 years = £5060

There have never been any expenses kept as such - anything that needed doing odd jobs etc we have done ourselves buying the equip needed (bathroom was replaced this year by myself)

We hold a mortgage on the property (tracker) and aslo pay buildings insurance
It is a 2 bed house rented to 1 tennent

by **wamstax** on Wed Dec 02, 2009 9:03 am

I would add that you will inevitably have a tax liability of less than your estimate as you would be entitled to deduct the actual costs of repairs - but not your labour - and also any interest element of payments on the mortgage if it was taken out to purchase the b-t-l property. You would also be entitled to deduct 10% of the rents as wear and tear allowance on fixtures and fittings if the proerty was let furnished.

Yes and if the proerty was jointly owned then in the absence of any alternative legal ownership allocation you would be able to split the rent between the owners e which might if all the circumstances were appropriate lead to little or no penalty (apart from statutory in terest) being charged on the ultimate tax liability

You might find the link here helpful in determining what you can and cannot claim. I am assuming that you own the proerty jointly given your comment that "We hold a mortgage on the property " however it will of course depend on whose name(s) is/are on the property deeds

by **wamstax** on Wed Dec 02, 2009 9:13 am

This is the link that might be useful
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/index.htm?cids=Google_PPC&cre=Money

but as you will gather from the posting an experienced tax adviser can protect your partners interest and also minimise the tax and penalties that can be sought by HMRC even though the taxes Acts say that the penalty can be up to 100% of the tax

Here is another link that will tell you about the new penalties legislation as it applies for offences after 1-04-2009 and although there are different conditions for pre 1-04-09 offences the principles about early disclosure are relevant. You can get abatements of the penalty for early disclosure (up to 20%) cooperation (up to 40%) and of course there is little you can do about the last section of abatement being size & gravity (up to 40%) but of course again the tax adviser can put matters in the best light possible to glean that extra bit of discount.
The new penalties legislation is summarised here - http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf

I hope that this lets your partner sleep at night a bit easier and of course once he/she makes her peace with HMRC more sleep and less stress should follow.

by **advice needed** on Wed Dec 02, 2009 1:07 pm

The mortgage is not a BTL -its just a tracker does this matter can we still claim on the interest repayments

The property is only in my partners name Im afraid - so it looks like we cant split the tax
but would it be possible to do this in the future if we re-mortgaged and then transferred to shared ownership