Income tax on rental property paid by one person?

[marshmallowfinder]

For a few years, we had income from letting out our home whilst we lived in tied accommodation with my husband's job. I did all the tax returns in my name during this time, declaring the full income less allowable expenses and then paying the tax due. It now seems this was a cock up and we should both have been doing a tax return, declaring it 50:50. Does anyone know if there are implications from this please as we are shitting ourselves that it means somehow we might have more to pay? Or is it just the case that it's an admin thing that just needs to be clarified with HMRC? Thanks ever so much, if anyone knows and can help. (Will see a tax advisor v soon if necessary. )

What rate of tax did you have to pay on the rental income (20%, 40% etc), and what is your DH's marginal rate of tax compared to that?

And it's not "just an admin thing" sadly. Your DH has unknowingly been underreporting his income to HMRC. There will be penalties charged for failure to notify chargeability, failure to submit a return etc. even if no additional tax is due.

And yes - I strongly advise you to see a tax advisor! It is necessary.

20% tax. He's 20% too.

If the income either way would have been taxed at 20%, then you won’t owe any extra tax.

As long as the tax was paid, there was no intention to defraud. Most you might get is a fine. See what your accountant says.

You will likely not even get a fine. Particularly if this was before the rules changed >5years ago

He can appeal the penalty for late self assessments:

• ”you were unaware of or misunderstood your legal obligation

https://www.gov.uk/tax-appeals/reasonable-excuses

The fact 100% of the income was reported and tax paid, albeit incorrectly, shows you always intended as a couple to pay all tax due and simply misunderstood how to do it.

I agree with see a tax advisor.

And he's still 20% even when you add on his half of the rental income?

If so, the amount of tax you paid will be correct, but they won't be able to simply credit the tax you paid to his liability. You'll need to make a claim for overpayment relief.

Definitely see a tax advisor.

Do you have a job as well, where you earn over the tax-free allowance? If not, and some of the rental income was untaxed, you'll owe some money.

Thank you very much indeed everyone.

We had this situation. Rental income was paid to me as I handled all the finances. As I received it and did the finances I paid the tax. I paid tax at 40% and DH at 20% so I called them up after a few years to see if we could split the income between us and was told that was fine so I did that which saved a few hundred.

Then we split and he carried on getting all of it so I just put that information on my last return. Have never been queried. It was clear from all my returns that I was married so I would have thought it would be picked up that I was initially declaring it all (disadvantageously). So maybe they don’t care if they’re getting more or the same tax either way.

The penalties are going to be behaviour based. At best, this was careless - at worst HMRC may argue it was deliberate and that could lead to criminal proceedings.

I don't see how you can argue that you took "reasonable care" when you put all the income from a joint asset on one person's tax return. Basic logic would have dictated that to be the wrong approach. Therefore at best it was "careless" because you also obviously did not obtain tax advice before doing that.

You need to take advice from a specialist in dealing with voluntary disclosures so you don't make this worse.

You paid the correct tax. If it were the case that it had gone through you because you were a lower tax band earner that would be different. They aren’t going to pursue criminal proceedings as per pp when there is no intent (or actual) defraud.

If you are married then the default is that the income is 50:50 unless you complete a declaration of trust.

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9814

Also, the responsibility for the accuracy of your self assessment returns is yours, not HMRC's HMRC can go back 20 years in cases of deliberate tax evasion.

Right. Except she didn't pay the correct tax and nor did he.

Also advise seeing a tax advisor, they'll be able to tell you pretty quickly how it can be remedied, and they should be able to minimise any penalties due.

She probably did pay the correct tax as she said both of them pay at 20% and she paid 20% tax on the whole of the income. So it’s really a paperwork exercise to split the income and tax records 50/50 between them and give an acceptable reason for him to be forgiven the penalty for failing to file a self assessment.

HMRC will advice you what to do. It was a genuine mistake and it sounds like you paid the right amount of tax overall (just some of it from the wrong pocket). I have always found them very helpful (and free). You can go back and change your tax return for a few? years online. More than that and you have to do it via HMRC. I assume the property is in joint names which is why you think you should have declared 50:50?

Thank you very much!