Reminders are being sent out to owners of second homes from the taxman in the UK warning them that they must declare rent on their tax returns.
According to a leading UK firm of accountants many owners believe they don't owe anything if rent revenue is swallowed up by increased mortgage payments but if they don't do their sums correctly they could end up with a hefty fine.
The current regime, operating as a pilot, is expected to generate significant arrears and if successful could become a major campaign by HM Revenue & Customs.
'HMRC is confident of success because information from stamp duty land tax returns means it can match properties to individuals' declared principal private residences and take matters from there,' said Alan McCann, a director of tax at business advisers DTE.
'The letters are not formal enquiries and there is no legal obligation to respond,' he added. 'However, if there is no response, HMRC will consider a formal inquiry.'
The general advice is for all landlords to review their tax position and not just assume that higher mortgage payments mean no tax is due.
'I would advise property owners to urgently review their tax position in relation to second properties generating rental income. If there is a tax arrears issue, coming forward with a voluntary disclosure could reduce any penalties,' said Mr McCann.
'If a property was bought entirely or partly by funds from other asset sales you should consider whether there may be any additional capital gains tax issues,' he concluded.
