Aibu most people don't know rental income is taxable?

[sicknessmedi]

Most people don't realize that if you have a second home and rent it out, you have to declare rental income as income and pay tax?

Some people also have property abroad that they do not declare too

But the questions are on the self assessment tax form

HMRC has ways to find out, and then they’ll be going after interest and fines.

However, if you live in the property & rent out a room

A person can earn up to 7k per year tax free

https://www.gov.uk/rent-room-in-your-home

Land registry records. They can, and do check these and if someone owns more than one property they will write to them to ask if they should be filing tax returns to report the rental income.

sadly though, Hmrc is underfunded and it's time consuming

Who remembers this ?

https://www.bbc.com/news/uk-england-berkshire-23490395

I was just thinking this. You have money, any money, coming into your bank account, the government will tax it if they know about it.

The thing is, this makes me extremely cross. At present there is a lot of anxiety around the next Budget and what tax rises are coming - if all these people who are meant to pay tax on their rental income did, there wouldn’t be such an enormous shortfall. Quite a few people who aren’t declaring rental income (whether from a whole property or letting a room on Air BnB) are the same people who think that “the rich” should pay.

I am a landlord (who pays tax, obviously).

You could say the same about home hairdressers, window cleaners, cleaners, mechanics and any other number of self employed people who evade tax liability. Is there a reason why you have singled out landlords?

I used to work in this very area at HMRC. There are quite a lot of people who think they’re not making a profit because they assume they can deduct their mortgage payments as an expense (capital repayments were never deductible, interest is now restricted). Or so they claim. There are also a handful who think they can set the rent they are paying for their own home against the rent they are receiving.
HMRC has various ways of finding out if people are not declaring rental income, but many of the disclosures are voluntary, quite often because they’ve sold the property and know they have to pay CGT on it, go to an accountant/do some research, and realise they should have been declaring rental income.

It’s not time consuming now. HMRC are currently using AI to scan Land Registry titles. People who either negligently or willfully don’t pay tax on rental income will find out soon enough that they really should be.

Tbh it’s the same for people with Nanny’s - often pay cash in hand so they don’t have to pay tax. Very unethical and if caught they are the ones liable to pay it all back - not the nanny

LL's know they have to do self assessment and pay tax. Does it really matter if the general public knows or not?

Tax people randomly audit people who complete self assessment. I've never been audited but as DH is an accountant we have accounts going back for all of the 20 years we have rented out properties.

The biggest way HMRC catch tax evaders is a phone call from a friend/neighbour. Tip offs are a big help in targeting the right people!!

I rented out a property for a year or two (negative equity, couldn't afford to sell it, but had to move for a job).

I filled out a tax return every year, but as others have said, by the time I took into account my costs to rent it out, maintenance etc., I didn't actually make a profit, so I never got a bill for tax.

So strictly speaking, it's not necessarily true you will "have to pay tax" but you definitely "have to declare it".

They know they just dont declare it.

If they dont need to do a tax return they will justify it by the fact they dont have to read the line that says do you have a property you rent.... and can pretend they didn't realise that (rental) income is taxable (not sure how they argue that line either!!)

As I need to do a self assesment i cant tick NO and lie... that is lying to the tax man and in tax you are guilty until proven innocent - if they are doing that wow thats bad.

And yes I would "tell on them"

There’s been a lot of talk about how the new renters bill will make it harder for individual landlords to make any money on property, and how it’s too much hassle for people with one or two places. This was flagged as a bad thing as when they sell, the property will go to a bigger, professional landlord with multiple properties.

I had thought “well why would the govt want professional landlords to dominate?”

And this post shows me why - because it’s less likely that landlord companies will avoid paying tax.

Are these people in receipt of rental incone?

Indeed. I don’t believe people really don’t know.

I’ve always assumed all income was taxable….and I’ve never understood why inheritance isn’t taxed. Interest on savings is taxed…why not income inherited?

No I think they do know, I rent out a property and I pay tax i knew this.

It is, over a certain level, at 40%

This. Dishonest or stupid landlords. I would say however that they may have been sarcastic with you, it is very unlikely they do not know they have to pay taxes if they rent through platforms and issue receipts.

You must have heard of inheritance tax?!