Mark McLaughlin warns that taxpayers are responsible for notifying rental income to HMRC in a timely manner to avoid the risk of penalties for failure to notify chargeability to tax.
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Individuals can begin receiving rental income for a variety of reasons. For example, they might decide to become a ‘buy-to-let’ property investor; or they may become an ‘involuntary landlord’ where a deceased relative leaves an investment property in their will.
Don’t forget…
There is a general requirement to notify HM Revenue and Customs (HMRC) when an individual is chargeable to income tax (or capital gains tax) if they have not received a notice to file a return, within six months of the end of that tax year (i.e., by the following 5 October).
This general notification requirement is subject to certain limited exceptions (including where the rental income falls within the £1,000 tax-free property allowance), which are not considered here.
…or else!
Tax-based ‘failure to notify’ penalties can be charged if this notification requirement is not met, at percentages ranging from 0% to 100% (or possibly 200% for an offshore liability). The penalty range is determined by the taxpayer’s behaviour that led to the failure to notify, and whether the disclosure was ‘prompted’ or ‘unprompted’. Reductions in the penalty percentage are given for the quality of the taxpayer’s disclosure in enabling HMRC to establish the amount of tax unpaid because of the failure.
HMRC will generally seek to impose penalties at the higher end of the scale if the taxpayer’s behaviour (i.e., the failure to notify) was deliberate, particularly if the undisclosed income was also concealed from HMRC (see the penalty guidance in HMRC’s Compliance Handbook Manual at CH72540 and following).
Deliberate…but not concealed
For example, in Locke v Revenue and Customs [2025] UKFTT 956 (TC), HMRC wrote to the taxpayer in December 2022 regarding two properties, which the taxpayer had been letting out and for which he had been receiving rental income, which HMRC considered had not been disclosed. The taxpayer replied that he disclosed to HMRC that he was receiving income from 2006 by completing a self-assessment return, and that he received a letter from HMRC dated 22 January 2007, which stated that HMRC did not propose to send him any further tax returns in future. HMRC informed the taxpayer that having checked his 2006/07 tax return, the property rental income had not been declared (contrary to what the taxpayer stated). HMRC subsequently sought to charge penalties on the basis that the taxpayer’s failure to notify the rental income was “deliberate but not concealed”.
On appeal, the First-tier Tribunal (FTT) considered that the taxpayer had an obligation to notify HMRC of his chargeability to income tax (for 2020/21 and 2021/22) but had failed to do so by the statutory deadlines. Whilst the taxpayer filed a tax return on 17 January 2007, he had not disclosed any rental income. Given that no rental income was disclosed in the return, HMRC’s letter stating that no returns would be sent in future was not surprising. Furthermore, it was not until HMRC’s compliance checks were opened in December 2022 that the taxpayer disclosed his rental income for 2020/21 and 2021/22. There was no concealment of the situation leading to the failure to notify, so the FTT concluded that the failure to notify was deliberate but not concealed. The penalties were upheld.
Practical tip
HMRC has produced an online tool to enable landlords to check whether they need to notify the receipt of rental income: see www.gov.uk/guidance/check-if-you-need-to-tell-hmrc-about-your-rental-income.
