Your late aunt appointed you as the personal representative of her estate, but when sorting through her paperwork, you discovered she had rental income from letting out her old home, after moving into residential care. However, your aunt did not declare this income to HM Revenue and Customs. What should you do?
As your aunt’s personal representative, it’s your responsibility to collect details of her assets and liabilities at the date of her death, and declare them to HMRC for all taxes, not just inheritance tax.
How do I make a disclosure to HMRC?
HMRC has introduced a ‘Let Property Campaign’ to make the process simpler. This gives taxpayers the opportunity to report undeclared rental income and expenses, and pay any tax owed. You will also benefit from more favourable tax terms using this system.
To take part in the Let Property Campaign, you should:
- Notify: tell HMRC online via the Digital Disclosure Service (DDS), that you want to take part in the Let Property Campaign on your aunt’s behalf;
- Disclose: tell HMRC about her rental income and expenses;
- make a formal offer; and
- pay any tax and interest owed
When you notify HMRC, you will receive a Disclosure Reference number (DRN) and Payment Reference number (PRN). You then have 90 days from HMRC’s acknowledgment to make a full disclosure and pay any tax owed.
My aunt has incurred expenses in letting out her property. Can I claim for these?
Yes, you can claim expenses including fees for professional services, such as a letting agent or accountant, insurance, and repairs. It is also possible to claim for loan interest, if there is a mortgage outstanding, though this is now restricted for residential properties, but not commercial properties. If in any doubt, you should seek professional advice.
Do I have to pay interest on the tax owed, and are there any penalties for late payment?
HMRC will currently charge you interest at 2.6 per cent on any tax paid late. This is not a penalty, but ‘commercial restitution,’ as your aunt had the use of money which was owed to HMRC.
As her personal representative, you won’t normally be liable for penalties for any irregularities in her tax affairs.
In theory, HMRC can go back 20 years under the Let Property Campaign. However, for a deceased taxpayer, this will probably be limited to the ‘in-date’ tax years, which will be the four previous tax years.