Landlords are being reminded to check that the information they have reported to HMRC matches the income they have actually received from renting out property.
HMRC receives information about landlords from a range of third parties and other sources. This can include information related to tenancy deposit schemes, allowing HMRC to compare its data with figures reported by individual taxpayers.
Where those figures do not appear to match, HMRC may write directly to the landlord and ask them to check their tax position.
Receiving one of these letters does not automatically mean that tax has been underpaid. However, it should not be ignored. The information HMRC holds may be correct, incomplete, or based on circumstances that have since changed, so landlords should review their records carefully and respond within any given deadline.
At Digital Tax Matters, our experienced accountants in Bedford can help landlords review their property income, understand what needs to be reported and respond appropriately if HMRC gets in touch.
Why Is HMRC Contacting Landlords About Property Income?
HMRC increasingly uses information from different sources to identify potential differences between what a taxpayer has reported and what other records suggest may have happened.
For landlords, this can include information relating to rented property and tenancy arrangements.
HMRC may compare this information against Self Assessment tax returns and other records it already holds. If the figures do not appear to match, it may send a letter asking the taxpayer to review their position.
The purpose of the letter is generally to encourage the landlord to check whether all relevant property income has been declared.
This might apply where someone has received rental income but has not included it on a tax return, where the amount declared appears lower than expected or where HMRC believes a property has been let but cannot see the corresponding income within the taxpayer’s records.
The letter may also remind landlords of other tax responsibilities associated with owning property, including Capital Gains Tax when a property is sold and Making Tax Digital for Income Tax when the relevant qualifying income thresholds are met.
In this article, we’ll cover:
- Why Does HMRC Use Third Party Information?
- What Should You Do If You Receive A Letter From HMRC?
- What Property Income Needs To Be Declared?
- How Does The £1,000 Property Allowance Work?
- What Happens If You Have Sold A Rental Property?
- How Does Making Tax Digital Affect Landlords?
- What If You Have Nothing To Declare?
- What Happens If You Ignore An HMRC Letter?
- What If You Discover Undeclared Rental Income?
- How Digital Tax Matters Can Help
Why Does HMRC Use Third Party Information?
HMRC does not rely solely on the information taxpayers enter on their tax returns.
Information can be received from third parties and compared against the figures already held by HMRC. For landlords, the original guidance specifically identifies tenancy deposit schemes as one potential source.
This can give HMRC an indication that a property is being rented, even if the rental income it expects to see does not appear on the landlord’s tax return.
There can be perfectly reasonable explanations for a difference. For example, a property may have been jointly owned, the landlord’s circumstances may have changed during the year, or the information HMRC holds may not provide a complete picture of the property arrangement.
However, a difference may also indicate that rental income has been missed from a tax return.
This is why receiving a letter should prompt a proper review rather than an immediate assumption that either HMRC or the taxpayer is wrong. The first step should be to compare HMRC’s information with your own records.
What Should You Do If You Receive A Letter From HMRC?
If HMRC writes to you about property income, read the letter carefully and check the response deadline.
You should then review the tax year or tax years HMRC is asking about and compare the figures on your tax returns with your property records. This could include reviewing rental statements, bank transactions, tenancy agreements and records of property-related expenses.
You should establish whether all of the rental income received has been included in your tax returns and whether any other property-related information needs to be corrected.
It is also worth considering whether HMRC is aware of the full circumstances. For example, if you owned the property jointly with another person, make sure you understand which proportion of the income you should have reported.
If your accountant prepares your tax returns, send them a copy of the HMRC letter. They can compare it with the previously supplied information and help determine whether anything needs to be corrected.
Do not assume your accountant will automatically receive a copy of correspondence that HMRC sends directly to you.
What Property Income Needs To Be Declared?
If you receive income from renting out land or property, you may need to tell HMRC about it.
This can include income from a traditional residential tenancy, but property income can also arise in other situations.
HMRC’s current guidance says its rental income checking tool can apply to income from renting out a room in your main home, your whole home, another property or even land such as a driveway.
You can use HMRC’s rental income guidance to check whether property income needs to be reported.
The tax treatment will depend on the amount received and your individual circumstances.
One important distinction is between gross rental income and taxable profit. Your rental income is the amount received before eligible expenses are deducted. The eventual amount of tax due may be based on the taxable profit after applying the relevant rules.
Landlords should therefore keep accurate records of both income and allowable costs.
This is particularly important where income comes through different routes. A landlord might receive rent directly from a tenant, through a letting agent or through another platform.
Regardless of how the money reaches you, it may still be treated as part of your property income for tax purposes.
GOV.UK provides further guidance on paying tax when renting out property. Landlords may need to contact HMRC or register for Self Assessment depending on the level of rental income they receive.
How Does The £1,000 Property Allowance Work?
Some landlords may be eligible for the property allowance.
The property allowance provides a tax exemption of up to £1,000 a year for individuals receiving income from land or property.
If your annual gross property income is £1,000 or less, you will generally not need to tell HMRC about that income unless one of the exceptions to the allowance applies.
Where gross property income exceeds £1,000, additional reporting requirements may apply.
HMRC currently states that individuals with gross property income between £1,000 and £2,500 should contact HMRC. In contrast, those with higher levels of property income may need to register for Self Assessment depending on the figures involved.
You can find further information in HMRC’s guidance on tax-free property and trading allowances.
The property allowance should not simply be assumed to apply in every situation.
There are circumstances in which it cannot be used, and landlords also need to consider whether claiming actual allowable expenses would yield a better result.
This is one reason an HMRC letter should be reviewed in the context of your full tax position rather than by looking only at the total rent received.
If you believed your income fell within an allowance but HMRC has contacted you, check the rules and make sure your treatment was correct.
What Happens If You Have Sold A Rental Property?
HMRC’s letters may also remind landlords that selling or otherwise disposing of property can create Capital Gains Tax responsibilities.
Rental income and Capital Gains Tax are separate issues.
Rental income is the money you receive from letting the property. Capital Gains Tax may become relevant when the property is sold or otherwise disposed of and a taxable gain arises.
For example, a buy-to-let property purchased several years ago and later sold for more than its allowable cost may create a gain that needs to be considered for Capital Gains Tax.
Current GOV.UK guidance states that UK residential property gains that need to be reported generally have to be reported and any Capital Gains Tax due paid within 60 days of completion.
HMRC provides further guidance on reporting and paying Capital Gains Tax.
If you are already within Self Assessment, the disposal may also need to be included on your tax return.
Not every property sale creates a Capital Gains Tax liability, and reliefs or exemptions may apply depending on the circumstances. However, landlords should not assume that selling the property ends their tax responsibilities.
If an HMRC letter refers to a property you have since sold, review both the rental income received before the sale and the tax treatment of the disposal itself.
How Does Making Tax Digital Affect Landlords?
Making Tax Digital for Income Tax is another area landlords need to consider.
The system is being introduced in stages and applies to qualifying income from self-employment and property.
From 6 April 2026, landlords and sole traders with total qualifying income of more than £50,000 based on the relevant earlier tax return are required to use Making Tax Digital for Income Tax, unless an exemption applies.
The threshold will increase to more than £30,000 from April 2027 and to more than £20,000 from April 2028.
Those within MTD need to keep relevant records digitally and use compatible software to send quarterly updates to HMRC.
This means undeclared or incorrectly reported property income can affect more than the tax due for an earlier year.
If the correct level of qualifying income would place you within Making Tax Digital, you also need to consider whether your digital reporting obligations are being met.
For landlords with both self-employment and property income, the figures are considered together when establishing qualifying income.
This makes accurate reporting increasingly important as MTD is extended to more taxpayers.
What If You Have Nothing To Declare?
Receiving a letter does not necessarily mean you have made an error.
After reviewing your records, you may conclude that the information on your tax returns is correct and that there is no additional property income or tax to declare.
If that is the case, you should still respond.
The original HMRC guidance for these letters makes it clear that taxpayers who have nothing further to declare should contact HMRC using the details provided in the letter to confirm their position.
Ignoring the correspondence because you believe your return is correct is not advisable.
HMRC has contacted you because the information it holds has raised a question. Responding allows you to explain the position and provide any relevant information.
Keep a copy of your response and any supporting calculations or documents.
If you are unsure why HMRC believes there is a discrepancy, professional advice can help you review the figures before replying.
What Happens If You Ignore An HMRC Letter?
Failing to respond can make the situation more serious.
The information supplied about HMRC’s landlord letters warns that if HMRC does not receive a response, it may proceed with a compliance check or, in more serious cases, a criminal investigation.
This can also affect how a later disclosure is treated.
HMRC distinguishes between unprompted and prompted disclosures.
An unprompted disclosure is broadly one made when the taxpayer has no reason to believe HMRC has discovered, or is about to discover, the issue. A disclosure may be treated as prompted when HMRC has already contacted the taxpayer about the relevant tax or activity or the taxpayer knows HMRC has information about the issue.
This distinction can be important when penalties are considered.
HMRC’s guidance encourages taxpayers to come forward before problems progress further, and the extent of the penalty reduction available may depend in part on the circumstances and the quality of the disclosure.
The practical message is simple: if HMRC writes to you, deal with the letter promptly.
What If You Discover Undeclared Rental Income?
Reviewing an HMRC letter may reveal that rental income was not correctly declared.
If this happens, do not ignore the issue or correct the next tax return.
The appropriate way to deal with historic undeclared income will depend on the circumstances.
HMRC operates the Let Property Campaign for individual landlords who need to disclose unpaid tax relating to residential property income. It can apply to landlords with a single property or several properties, as well as certain other residential letting situations.
You can read HMRC’s Let Property Campaign guidance for more information.
HMRC’s current guidance states that landlords with undisclosed income should notify HMRC and, after receiving the relevant disclosure reference, generally have 90 days to calculate and pay what they owe under the campaign process.
However, if HMRC has already contacted you about the specific income, the way the disclosure is treated may differ from someone coming forward voluntarily before HMRC knows about the issue.
You should therefore take advice before submitting figures if you are unsure about the correct process.
The calculation itself may involve more than simply adding up rent received. You may need to review allowable expenses, previous tax returns, ownership proportions and any losses that can legitimately be taken into account.
Getting the disclosure right at the outset can help avoid further questions later.
How Digital Tax Matters Can Help
Property tax can become complicated quickly, particularly when HMRC compares information from several sources.
At Digital Tax Matters, we can help landlords review the information they have already reported and compare it with their rental records.
If you receive a letter from HMRC, we can help you establish why HMRC may have contacted you, whether the figures previously reported are correct, and whether any further income or gains need to be disclosed.
Where undeclared rental income is identified, we can also help work through the relevant years, calculate the figures and understand the appropriate way to bring your tax affairs up to date.
We can also review wider property tax responsibilities, including Self Assessment, Capital Gains Tax and Making Tax Digital for Income Tax.
This is particularly important where a landlord has several properties, jointly owned properties or a combination of rental and self-employment income.
If you receive an HMRC letter about property income, send it to us as soon as possible. The deadlines and instructions within the letter will determine what needs to happen next.
Don’t Ignore HMRC Questions About Your Property Income
HMRC now has access to information from a range of sources and can compare it with the figures landlords report on their tax returns.
Where the information does not appear to match, landlords may receive a letter asking them to check their property income and make a disclosure where necessary.
The most important thing is to respond.
If your tax returns are correct, you may need to confirm that there is nothing further to declare. If income has been missed, dealing with the issue promptly can help prevent the situation becoming more complicated.
Landlords should also remember that rental income is only one part of the picture. Selling a property can create Capital Gains Tax responsibilities, while higher levels of property income may bring Making Tax Digital requirements into play.
If you have received a letter from HMRC, or you have property income or a property disposal that has not previously been discussed with us, contact Digital Tax Matters today. We can review your position, explain what needs to be reported and help you respond to HMRC correctly.