UK Let Property Campaign in 2025/26: Voluntary Disclosure for Landlords with Undeclared Rental Income

What is the Let Property Campaign?

The Let Property Campaign (LPC) is HMRC's voluntary disclosure facility for individual landlords who have not declared rental income properly. Launched in September 2013 and currently open with no announced end date, it sits alongside HMRC's other voluntary disclosure routes (Worldwide Disclosure Facility for offshore, Code of Practice 9 for deliberate fraud, Code of Practice 8 for civil investigation).

The LPC is targeted at the estimated 1.5 million UK landlords who do not file full and accurate returns. Reasons for non-disclosure vary: pure ignorance of the obligation (especially for accidental landlords inheriting property); misunderstanding of Section 24 mortgage restriction; assumption that small rental income falls below thresholds (no such threshold exists for non-dwelling let purposes); deliberate evasion. The campaign treats all of these similarly for process purposes — the differences emerge in the behaviour-band penalty assessment.

Headline benefit: significantly reduced penalty percentages compared to being caught first by HMRC Connect data-matching. Headline cost: you must comprehensively disclose ALL undeclared rental years, pay the tax and any accepted penalty, and commit to filing future returns correctly. The LPC is not a "partial amnesty" — it is a structured route to settling historic liability at lower cost than alternatives.

Penalty Bands by Behaviour

The penalty percentage applied to undeclared tax depends on (a) the behaviour category and (b) whether the disclosure was prompted (HMRC contacted you first) or unprompted (you contacted HMRC first):

The percentage applies to the UNPAID TAX, IN ADDITION to the tax itself and daily interest at 7.5%. For typical small landlords with one or two BTLs and a few years of undeclared income, "careless behaviour, unprompted" is the most common category, yielding 0-15% penalty. The actual percentage within the band depends on co-operation, completeness of disclosure, telling-helping- giving-access factors that HMRC weight individually.

Allowable Rental Expenses

UK residential property rental expenses allowed against rental income for tax purposes in 2025/26:

• Letting agent and property management fees — typically 8-12% of rent. Fully deductible.
• Buildings and contents insurance — specifically landlord insurance. Fully deductible.
• Gas safety certificates, electrical safety (EICR every 5 years), EPC renewals — fully deductible.
• Repairs and maintenance — like-for-like replacement of existing fabric (boilers, plumbing, electrical, decoration). NOT capital improvements (extensions, kitchen upgrades to a better standard).
• Replacement of domestic items (sofa, fridge, washing machine, carpets) on like-for-like basis only. Original purchase NOT deductible — only replacements. The pre-2016 10% wear-and-tear allowance was abolished in April 2016.
• Mortgage interest — REPLACED by Section 24 restriction (see next section). For corporate landlords (Ltd company SPVs) mortgage interest remains fully deductible.
• Council tax and utilities paid by the landlord during void periods between tenancies.
• Legal fees for short-term lettings (under 12 months), tenant evictions and standard tenancy arrangements. NOT for property purchase (that is capital cost). NOT for refinancing the mortgage (capital cost).
• Accountant fees for the rental accounts and SA return preparation.
• Travel costs for property management — limited rules, must be exclusively for rental purposes. Cannot include personal travel mixed with property visits.

For LPC purposes you must reconstruct allowable expenses for each disclosed year from receipts, bank statements, letting agent annual statements, insurance schedules, etc. HMRC accepts reasonable reconstruction where exact receipts are missing, provided the methodology is sensible and conservative. Where doubt exists, err on the side of including only well-evidenced expenses to maintain the credibility of the disclosure.

Section 24 Mortgage Interest Restriction

Section 24 of the Finance (No. 2) Act 2015 phased out the ability of individual landlords to deduct mortgage interest from rental profit. Phased in from 6 April 2017 to 6 April 2020, fully in effect since the 2020/21 tax year: individual landlords cannot deduct mortgage interest as an expense at all. Instead, mortgage interest is given as a 20% tax credit against the tax liability on rental income.

Worked example. Landlord with one BTL: rental income £20,000, expenses (insurance, agent, repairs) £3,000, mortgage interest £10,000. Pre-2017 (full deduction allowed): taxable rental profit = £20,000 - £3,000 - £10,000 = £7,000. Higher- rate landlord at 40%: tax £2,800. Post-2020 (Section 24 in full effect): taxable rental profit = £20,000 - £3,000 = £17,000 (interest no longer deductible). Higher-rate landlord at 40%: tax on £17,000 = £6,800. Minus 20% interest credit on £10,000 = £2,000. Net tax = £6,800 - £2,000 = £4,800. Tax bill rose from £2,800 to £4,800 — a £2,000 increase, 71% higher.

For basic-rate landlords (income under £50,270 total), Section 24 makes little difference (20% deduction vs 20% credit). For higher-rate (40%) and additional-rate (45%) landlords, the impact is severe. Many higher-rate landlords have transferred BTL properties into Ltd company SPVs (where mortgage interest remains fully deductible as a corporation tax expense). However, transfer itself triggers SDLT (Stamp Duty Land Tax) at full rates and potentially CGT (Capital Gains Tax) on disposal — the maths only works for landlords with substantial portfolios and long horizons. For LPC purposes, you must apply Section 24 correctly for each year from 2017 onwards (with the phase-in percentages for 2017/18 through 2019/20).

Rent-a-Room Scheme

Rent-a-Room is a tax relief for individuals who let a furnished room in their MAIN HOME (their only or main residence). It provides £7,500/year of tax-free rental income (£3,750 if the property is jointly owned, allocated to each owner separately). Income up to £7,500 is completely tax-free and does not need to be reported on a Self Assessment return.

Above £7,500/year, the landlord chooses one of two treatments: (a) pay tax on the income above £7,500 with no expense deductions (e.g. £10,000/year rent = £2,500 taxable, no expenses deducted); or (b) treat as normal rental property (full income vs allowable expenses). For most owner-occupier landlords with rooms producing £7,500-£15,000/year, option (a) wins because expenses are typically lower than the £7,500 threshold value.

Eligibility: room must be furnished; must be in your main residence (not a second home, not a holiday let, not a separate self-contained flat); must be a lodger arrangement (sharing common spaces) not a self-contained unit; applies to whole rooms (not part-rooms). Particularly useful for owner- occupiers in expensive cities (London, Cambridge, Oxford, Edinburgh) who let spare rooms. Airbnb of a single room within your main home counts as Rent-a-Room IF the room is genuinely a room (not a separate annexe with its own kitchen and bathroom). Whole-property short-lets do NOT qualify.

Joint Ownership and Form 17

For jointly-owned UK property where the owners are married or in a civil partnership, the default rule is that rental income is split 50/50 between the two parties regardless of actual ownership proportions or who receives the cash. This 50/50 default applies even if one spouse owns 99% of the property and the other 1%.

The exception: a Form 17 declaration to HMRC declaring the actual beneficial ownership split. Submit Form 17 with evidence (typically a Declaration of Trust or Deed of Trust drawn up by a solicitor) showing the agreed ownership percentages. Once Form 17 is lodged, the rental income is allocated by the declared percentages until the beneficial ownership changes.

Tax planning angle: a higher-rate-earning spouse can transfer beneficial ownership (via Declaration of Trust) to a basic-rate spouse, then lodge Form 17 to push rental income onto the lower earner — saving 20pp (or 25pp if additional-rate) on the transferred portion. Solicitor cost £300-£800; annual saving on £15,000 of rental income could be £3,000+. For unmarried co-owners (couples not married, siblings, partners), rental income is split by actual ownership proportions automatically — no Form 17 needed and 50/50 default does not apply.

HMRC Connect Detection

HMRC Connect is the cross-referencing data system that integrates many third-party data sources to detect non-compliance. Sources relevant to landlord detection:

• Land Registry — all property ownership transfers and second-property purchases are recorded; HMRC has full access to ownership data. Anyone owning more than one residential property is flagged for further attention.
• Bank data under CRS — UK banks file account data quarterly to HMRC under the Common Reporting Standard; large recurring deposits matching rental payment patterns trigger flags.
• Lettings agent quarterly returns — agents file detailed rental income data to HMRC for their landlord clients (the data was always available but Connect now correlates).
• Tenant utility data — energy companies and broadband providers provide tenant identity data to HMRC, matching addresses with non-owner-occupier names.
• Short-let platform data — Airbnb, Booking.com, VRBO and similar must file data to HMRC under the Platform Operators (DAC7) rule from January 2024, including hosts' income data.
• Council tax records — second-home council tax surcharges (1-100% premium depending on local authority) flag investor-owner properties.
• Deposit protection schemes (DPS, TDS, mydeposits) — tenancy deposit registrations indicate active letting and tenant details.
• Self Assessment cross-checks — declared rental income on SA returns is cross-checked against the other data sources; absence of rental income for properties showing in the other sources triggers a nudge letter.

The cumulative effect: HMRC can identify the majority of undeclared landlords from existing data without bespoke investigation. The LPC exists because HMRC would rather receive voluntary disclosure at moderate penalty than chase 1.5 million potential cases at high enforcement cost. Connect upgrades each year widen the net — the probability of detection rises every tax cycle.

Worked 5-Year Disclosure Example

Landlord A — higher-rate taxpayer, owns one BTL since 2020. Rental income £15,000/year, allowable expenses £3,000/year, mortgage interest £8,000/year. Has not declared on SA returns 2020/21 through 2024/25 (five years).

Annual tax owed calculation (Section 24 fully in effect from 2020/21): taxable profit = £15,000 - £3,000 = £12,000. Higher-rate tax at 40% on £12,000 = £4,800. Minus 20% mortgage interest credit on £8,000 = £1,600. Net annual tax owed = £3,200.

• Tax owed over 5 years: £3,200 × 5 = £16,000
• Daily interest at 7.5% accruing from each year's original due date: approximately £3,000 across all years cumulatively
• Penalty under LPC, careless-unprompted: 10-15% of tax = £1,600-£2,400 (assume £2,000)
• Total LPC disclosure cost: £16,000 + £3,000 + £2,000 = £21,000

Compare to "HMRC catches first" scenario, prompted, deliberate-not-concealed:

• Tax owed: £16,000 (same)
• Interest: £3,000 (same — interest is the same in both scenarios)
• Penalty 50%: £8,000
• Potential further escalation if Connect indicators trigger Code of Practice 9 (civil fraud investigation)
• Total cost: £16,000 + £3,000 + £8,000 = £27,000

Saving from voluntary LPC disclosure: £6,000+ on this typical case, plus avoidance of potential criminal investigation risk, plus future-state clean. The arithmetic in favour of disclosure is overwhelming for most realistic cases.

Step-by-Step Disclosure Process

1. Calculate roughly what you owe — rental income minus allowable expenses for each unfiled year, apply marginal tax rate, apply Section 24 from 2017 onwards. Use the LPC worksheet on gov.uk.
2. Notify HMRC via the online portal — gov.uk/let-property-campaign. Requires personal details (name, NI number, UTR if you have one), property addresses, tax years involved.
3. Receive Disclosure Reference Number (DRN) within 14 days — your case identifier for all correspondence.
4. Within 90 days of notification, submit the full disclosure — detailed calculation, all years, proposed tax, interest, and self-assessed penalty percentage with justification.
5. Pay the tax and proposed penalty at time of submission. Or set up Time to Pay (TTP) if cannot pay in full — typically 12 months spread, sometimes longer.
6. HMRC review — typically 6-8 weeks. They will either accept your proposal, propose adjustments, or request clarification.
7. Negotiate if needed — you can escalate to a more senior HMRC officer or to the Adjudicator's Office for independent review.
8. Settlement deed issued on agreement — the matter is concluded for the disclosed years. HMRC cannot re-open the disclosed years absent new information.
9. File future SA returns correctly — going forward, declare rental income each year on time.

For material amounts (over £10,000 of tax) engage a chartered accountant or tax specialist for the disclosure. Cost typically £800-£2,500 and substantially improves outcome — they know which expenses are allowable, how to position the behaviour category, and how to negotiate the penalty percentage. The professional cost is typically recovered many times over.

Why Disclose Now

• HMRC Connect data sharing improves yearly — Land Registry, banks, lettings platforms, deposit schemes, short-let platforms are increasingly integrated. The probability of being caught is rising, not falling. DAC7 reporting from Airbnb and Booking.com from January 2024 is a significant uplift.
• Voluntary unprompted disclosure attracts 0-30% penalty bands — vs 35-100% if HMRC contact you first. The difference is typically £5,000-£15,000 on a typical disclosure, sometimes much more.
• Criminal risk avoidance — deliberate, prolonged non-disclosure can be investigated under Code of Practice 9 (Civil Investigation of Fraud) or escalated to HMRC's Fraud Investigation Service. Voluntary disclosure under LPC essentially removes criminal risk for most cases.
• Mortgage and remortgage difficulties — banks increasingly check rental income has been declared on tax returns; lenders refuse remortgage applications for undeclared landlords. Disclosure unlocks future borrowing.
• Stress reduction — the persistent anxiety of waiting for an HMRC letter is genuinely material. Voluntary disclosure is a one-off cost that resolves the matter permanently with a clean future state.
• Probate and inheritance planning — undeclared rental income complicates probate; HMRC can pursue the estate for unpaid tax. Disclosure now clears the estate-planning runway.
• The campaign may close — although currently open-ended, voluntary disclosure facilities historically close with limited notice. Acting now locks in current terms.

Voluntary disclosure of historic landlord non-compliance is one of the few tax planning decisions where the maths is unambiguous: virtually always cheaper to disclose than to wait. The LPC is one of HMRC's most successful campaigns, with over 60,000 disclosures totalling more than £250m of tax collected since 2013. The simplicity of the process and the moderate penalty bands make it accessible without specialist help for smaller cases (under £10k of tax), while professional help pays for itself on larger ones.

Official References

• gov.uk: Let Property Campaign
• gov.uk: Renting out your property
• gov.uk: Tax relief for residential landlords (Section 24)
• gov.uk: Rent a room in your home
• gov.uk: Form 17 — Declaration of beneficial interests
• HMRC: Penalty bands for inaccuracies