In a recent move by Her Majesty’s Revenue and Customs (HMRC) to ensure accurate tax reporting, landlords who transferred their rental properties to a company in the 2017/18 financial year have become the focus of attention, according to insights from a leading tax consultancy, Blick Rothenberg.

Heather Powell, a partner and Head of Property and Construction at Blick Rothenberg, highlighted, “Landlords who incorporated their property business in that period but failed to report a capital gain on their 2017/18 self-assessment tax return are now being issued ‘nudge letters’.” This step by HMRC is part of a broader campaign aimed at verifying correct tax liabilities.

Incorporating a property business was often a strategic move suggested to landlords affected by the interest restriction when computing income tax from personally held properties, according to Powell. The ‘nudge letters’ sent by HMRC prompt taxpayers to review their tax relief calculations, referencing specific HMRC guidelines and granting a 30-day window for a response. Failure to respond may escalate to a tax inquiry and the issuance of a discovery assessment by HMRC.

Emphasizing the importance of swift action, Powell advised, “Any landlord receiving a nudge letter should promptly contact their tax advisors.” Furthermore, she cautioned landlords who transferred their properties to a company post-2017/18 to proactively review their reporting for potential capital gains, as they might be the next recipients of an HMRC notice.

This recent scrutiny follows an October warning from HMRC regarding a hybrid business model incorporating both partnership and company structures. HMRC declared the scheme ineffective, advising landlords involved in the scheme to withdraw and settle their tax affairs.

While the current ‘nudge letters’ being dispatched don’t explicitly assert UK tax obligations, they strongly suggest HMRC’s suspicion of potential underreported taxes among buy-to-let landlords. HMRC’s intensified focus indicates their vigilance in monitoring potential tax under declaration within this sector.