HMRC targets holiday let owners in UK tax crackdown
UK: His Majesty’s Revenue & Customs [HMRC] is continuing its crackdown on short-term rental property owners who it suspects have not paid enough tax, initially targeting 1,000 individuals across the UK.
According to The Financial Times, the tax authority is sending so-called ‘nudge’ letters to those it suspects of not declaring their full income from their lettings businesses on their self-assessment tax returns. It is believed that individuals receiving the letters are being given 30 days to respond, otherwise they risk facing a formal inquiry into their tax affairs.
HMRC is closely monitoring the short-term rental market as the number of hosts and owners renting out their properties has increased in recent years, particularly as more people looked for an additional revenue source during the pandemic and cost of living crisis. Short-term rentals also benefit from certain allowances, such as full income tax relief for mortgage interest deductions and lower capital gains tax on their sale, as opposed to longer-term, buy-to-let rentals.
While it is not clear exactly how many people are renting out their properties on a short-term basis in the UK, around 127,000 people declared their lettings businesses in their personal tax returns for the 2019-2020 tax year, the last time the data was made available. It is complicated further by the fact that booking platforms such as Airbnb do not provide a geographic summary of where these hosts and owners are operating.
Stefanie Remain, partner at accounting firm Blick Rothenberg, told the publication that she believed the missing tax was more likely to be “accidental” than “deliberate”, adding that “tweaks” to the legislation had made the property income process more complicated. However, HMRC does not take ignorance or confusion of the rules into account as an excuse when targeting individuals to pay tax.
A report released by The Office of Tax Simplification [OTS] back in November encouraged ministers to re-evaluate the complex tax system governing the short-term rental sector. HMRC has since said that it is working with online booking platforms to “build a more detailed understanding of the sector and who is operating in it”.
Prior to that, the OTS launched a review into the number of people working remotely from another country [on so-called ‘workcations’] amid calls for a potential revamp of the tax system that could also impact on hybrid workers in the UK who are spending less time working from an office.
In August, The Office for National Statistics [ONS] stated that 37 per cent of working professionals in London now work remotely, compared to 14 per cent of Londoners prior to the pandemic.
In addition, the UK Government launched an investigation into the impact of short-term holiday lets on popular tourism destinations in England to better understand the opportunities and challenges presented for consumers and tourism communities.
An open call for evidence, which lasted for 12 weeks, was set up to understand how the rise in use of rental booking websites and apps is having an impact on local communities.
The government was also said to be considering including a registration ‘kitemark’ scheme with spot checks for compliance with rules on issues such as gas safety, a self-certification scheme for hosts to register with before they can operate, and better information or a single source of guidance setting out the legal requirements for providers.
