Tax payers receiving property financing tax relief ‘nudge letters’ from HMRC

Jan 10, 2022

Taxpayers receiving property financing tax relief ‘nudge letters’ from HMRC

Many landlords have received a letter in the last few weeks from HMRC who appear to be undertaking a campaign querying the tax relief claimed in the 2019/20 tax returns in respect of financing costs on let residential property.

The letter asks the taxpayer to check the tax relief claimed and to amend their return by 31 January 2022. In the same letter, the taxpayer is asked whether they might need to make a similar correction to their 2017/18 and 2018/19 tax returns, in which case they need to inform HMRC within 30 days that they intend to make a voluntary disclosure, with a further 90 days then given to make that disclosure.

Ian Harlock-Smith, Tax Director, Saffery Champness and a member of the firm’s Private Wealth Practice Group, says:

“The letter explains how landlords can claim tax relief on residential property financing costs, and how the relief has changed since April 2017. Such costs could previously be deducted in arriving at taxable rental profits. Now, these costs cannot be deducted from rental profits, but instead only provide a 20% tax credit against the tax bill. This restricts the tax relief for such costs to the basic rate of tax. There was a transitional period from April 2017 to April 2020, during which there was a gradual shift from the old to the new method.

“It’s important to stress that this only applies to residential property letting, and not to other let property such as commercial property or farmland. Such finance costs can include the cost of getting a loan or alternative finance, and any interest paid on that loan or alternative finance.

“Those in receipt of this letter should not assume that they have made an error and will need to make a correction. Most will not need to take any further action, and in fact the letter does state that if you believe the information on your tax return is correct, no further action is needed. However, we would recommend that taxpayers consult their professional adviser in the first instance, to check the figures submitted on their returns for the tax years to 5 April 2020, 2019 and 2018.”

For Further information, contact Ian Harlock-Smith Tel 01202 204 744