Surge in landlords caught out by tax probe

Thousands more landlords are being pursued by the taxman as part of a drive to catch out those investors underdeclaring property income, figures obtained by Telegraph Money have revealed.

The number of landlords found to have underpaid or underdeclared tax on letting income rose by 51pc during 2018 to 8,704, according to a Freedom of Information request submitted by this newspaper.

The steep rise has sparked concern among groups representing property investors, who fear that landlords who make honest mistakes are being punished alongside deliberate tax evaders.

Data from HM Revenue & Customs also show the amount of income tax clawed back from landlords rose 67pc in 2018, to £32.8m, while the value of fines more than doubled to £5.6m.

The crackdown is part of HMRC’s “Let Property” campaign. Launched in September 2013, it targets landlords underpaying tax on rental income.

At the time, HMRC said the campaign would run for at least 18 months but it has been extended indefinitely. HMRC estimated up to 1.5 million landlords were underpaying tax worth as much as £500m a year.

Telegraph Money understands that last year’s surge came because HMRC identified more landlords it suspected of not paying enough tax and sent them letters asking for payment or an explanation.

Since the beginning of 2017, HMRC has been able to rely on a new weapon to identify people underpaying tax – powerful software called Connect.

Connect’s job is to spot likely examples of underpaid tax. It does this by analysing data from government databases and other sources. The software cost £80m to develop.

If HMRC catches landlords who have not paid the right amount, it can reclaim up to 20 years’ worth of these payments. It can also fine the landlord up to 100pc of the value of the unpaid tax and bring criminal charges.

If a landlord has made an honest mistake with underpaying tax and they admit it, the tax office will only reclaim tax going back six years and will charge smaller fines, if at all.

Once you tell HMRC about undisclosed income you have 90 days to pay the correct amount due, as well as any interest and penalties. An HMRC spokesman said: “We believe our customers want to pay the right amount of tax and want to help those not paying the correct amount to put that right.”

But landlord groups say the HMRC campaign risks penalising landlords who unwittingly underdeclare their letting income.

Chris Norris, of the National Landlords Association, a trade body, said: “Tax can be a complicated and confusing process for landlords who are trying to cut costs by doing their