If HMRC finds undeclared rental income, you will owe the tax for every year affected, interest on it from the date it was due, and a penalty calculated as a percentage of the tax. The penalty ranges from nothing to 100% of the tax depending on why it was missed and whether you came forward before HMRC asked. In serious cases HMRC can go back twenty years and, very rarely, prosecute. In practice most landlords settle through the Let Property Campaign with a modest penalty and no further action.
The three parts of the bill
- The tax itself. Income tax on the rental profit for each year, at the rate that applied to you in that year.
- Interest. Charged from the date the tax was originally due, so older years cost more.
- A penalty. A percentage of the tax, set by HMRC’s behaviour scale: lower if the mistake was careless and you came forward unprompted; higher if it was deliberate or you waited for HMRC to write.
How the penalty is set
HMRC asks two questions: why was the income not declared, and did you tell HMRC before it asked? For a careless mistake, an unprompted disclosure — you tell HMRC before it asks — ranges from 0% to 30% of the tax, and can be 0% if you fully cooperate; a prompted one, made after HMRC has written to you, ranges from 10% to 30%. Deliberate behaviour ranges from 20% to 70%, and deliberate and concealed from 30% to 100%, which also takes the look-back period to twenty years. Our penalty estimator shows the ranges for your own situation.
How far back it goes
Four years for a genuine mistake, six for a careless one, twenty for deliberate behaviour. HMRC decides which applies from your explanation and your records, which is why a clear, honest account of what happened matters as much as the numbers.
What limits the damage
- Come forward first. The Let Property Campaign is designed for this and gives the best terms available.
- Get the figures right. Under-declaring in a disclosure is worse than the original omission.
- Claim what you are entitled to. Mortgage interest relief, repairs, agent fees and the rest reduce the profit and therefore the bill.
- Ask for time to pay if you need it. HMRC will usually agree an instalment plan for a genuine disclosure.
Common questions
Will I go to prison?
Prosecution for undeclared rental income is very rare and reserved for deliberate, serious evasion. Almost all cases end in a civil settlement: tax, interest and a penalty.
I did not make a profit. Do I still have to declare?
If you had rental income above £1,000 in a year you should normally have told HMRC even if expenses wiped out the profit. Declaring a loss can also be useful: it carries forward against future rental profits.
Can I just start declaring from this year and forget the past?
That leaves the earlier years undeclared and discoverable. If HMRC later matches its data to your new return, you lose the benefit of a voluntary disclosure. Putting the past right first is safer and usually cheaper.
How do I estimate what I owe?
Our liability estimator gives a year-by-year figure from your rent and costs; the penalty estimator adds the penalty range.
This page is general information for UK landlords, not advice on your own position. Figures and rules are correct at the review date above and are re-checked after each Budget.