Private landlords are evading up to £550 million in tax on rents every year, according to official figures.
Property investors fail to declare around a quarter of all rental income – and a New Year tax crackdown is expected to close the gap.
Nearly 2 million landlords owning around 4 million letting homes pay £1.8 billion a year in tax on declared rents of almost £24 billion, say figures from HMRC.
Until 2009-10, the tax gap was estimated at £142 million – but the latest official figures claim this is far too low and is estimated at nearer £550 million and could climb higher.
HMRC suggests the tax gap comes from landlords failing to submit self-assessment returns and does not include those who do submit returns but are not fully declaring their rental income.
“Lettings are a key area where we are losing money” said an HMRC spokesman.
HMRC is already running dedicated task forces looking at landlord tax in several areas, including London, East Anglia, Leeds, York, the North West and North Wales.
The spokesman hinted a nationwide tax amnesty for property investors could be on the way next year, offering reduced penalties for full income disclosure.
John Whiting, of the Chartered Institute of Taxation (CIOT), confirmed landlord tax evasion was a serious problem as many tenants pay their rents in cash and HMRC had failed to keep pace with the growth in buy to let, which led to under estimates of unpaid tax.
“Clearly, rental income is an area where HMRC needs to pay more attention,” he said. “On this scale, it is serious tax evasion.”
‘Private landlord’ includes buy to let investors, student landlords, homes with lodgers, and holiday letting properties.
Whiting also explained accidental landlords, who rent out their former home after moving on, often fail to declare their income because they need the money to pay the mortgage on the letting property.
