HMRC warning for everyone with undeclared property income – you could be hit by a tax bill

EXPERTS are warning landlords as HM Revenue & Customs (HMRC) targets undeclared property income.

They claimed HMRC is, during its Let Property Campaign, sending letters to individuals it believes have rental property income that hasn’t been declared.

They also warn that many landlords misunderstand what is taxable – only the interest element of a mortgage is tax deductible, not the capital repayment. This often means there’s still a taxable profit.

Lack of awareness doesn’t exempt you – HMRC expects taxpayers to come forward voluntarily to correct the issue.

Scott Gallacher, Director at Leicester-based Rowley Turton, called it a “timely warning”.

He said: "It’s not uncommon to hear of amateur landlords who assume that having a repayment mortgage means there’s no taxable profit. However, ignorance of the law is no defence. 

“HMRC’s data-matching capabilities are becoming increasingly sophisticated, and landlords need to ensure they’re fully compliant rather than waiting for a letter to arrive. Any landlords unsure of their tax position should speak to an accountant as soon as possible.”

Zoe Goodchild, CEO at London-based Innovate Accountancy Limited, said many do not understand the rules.

She added: "HMRC’s campaign targeting undeclared rental income is a clear message: 'We know who owns property and we’re checking the books.' Many landlords misunderstand the rules – mortgage repayments aren’t fully deductible, and 'I didn’t know I had to declare' isn’t a get-out-of-jail-free card.

"HMRC’s data-matching across Land Registry, lenders, and other sources is increasingly precise, and this push will likely drive more landlords to seek professional advice rather than rely on shoebox accounting. 

“This could also be a signal of broader campaigns into other undeclared income streams, so advisers should prepare clients for proactive compliance, not reactive panic.”

Michelle Lawson, Director at Fareham-based Lawson Financial, warned landlords to not bury their heads in the sand.  

She added: “This has been an age old problem. HMRC launched their Let Property Campaign for rental income disclosure giving landlords the opportunity to disclose and settle their bill with a reduced penalty. HMRC will eventually find out and, with the upcoming pending Renters Rights Bill, landlords will likely be registering on a database. 

"As with everything landlord, all responsibility stops at the landlord's door so it is more important than ever before to get your ducks in line. Many try and do self assessment but there are many benefits of using a tax adviser and or accountant to ensure everything is disclosed correctly. 

"As a mortgage adviser, most lenders want evidence that tax is paid by way of the tax calculations and tax year overviews and I obtain these accordingly at the outset. I have seen customers have to repay tens of thousands in tax. so don't leave it too late or bury your head in the sand as this won't be going away.”

Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial, said Labour are targeting the wrong people.

He continued: "With the chancellor needed to raise revenue, HMRC are often the attack dogs. The political optics of this are poor though, as most people would love HMRC to go after big business and ensure that multinationals are paying their fair share of taxes, not clobbering the working man. 

“No doubt it will scare some into completing a return if they haven’t been, but it’s small beer.”

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said many landlords are being squeezed out of the market.

He added: “I work very closely with accountants for this very reason — to help clients truly understand the tax position and the real net return on their property investments. It’s not necessarily a complex calculation, but it does require clarity. 

"Many landlords underestimate how marginal their returns can be, especially in London, where yields are tight and the after-tax profit for a 45% taxpayer can be minimal once mortgage interest relief is capped at 20% and expenses are factored in. 

"The bigger question is who will want to stay in the buy-to-let market long term. With rising compliance costs, tightening regulation, and now HMRC scrutiny, smaller landlords are being squeezed out, leaving room for large corporate investors and HMO operators to dominate”

Kundan Bhaduri, Entrepreneur, Investor and Landlord at London-based The Kushman Group, said landlords need to cough up.

He continued: "After decades managing rental properties across Kent, I am not remotely surprised that HMRC has finally connected the dots between Land Registry records and missing tax returns. What surprises me is how many landlords genuinely believed they could fly under the radar indefinitely. 

"The taxman has always had access to property ownership data. They simply lacked the systems to cross reference it effectively until now. Protesting ignorance about filing requirements cuts no ice with HMRC. Property investment is a business, not a hobby. 

“If you cannot be bothered to understand your tax obligations, you have no business being a landlord. This crackdown will separate serious property professionals from amateur speculators who treated rental income like found money. The smart operators already file correctly and keep proper records. Those scrambling for accountants now should have hired them years ago.”