Rental Income and HMRC: When Landlords Must Notify and the Risk of Penalties

Individuals can begin receiving rental income for a wide range of reasons. Some actively choose to become buy-to-let investors, while others find themselves as “involuntary landlords”, for example after inheriting a property under a relative’s will.

Whatever the reason, once rental income arises, tax obligations follow quickly. One of the most commonly overlooked requirements is the obligation to notify HM Revenue and Customs (HMRC) that tax may be due. Failure to do so can result in significant penalties, even where the income itself is relatively modest.

The duty to notify HMRC

There is a general legal requirement for an individual to notify HMRC if they are chargeable to income tax or capital gains tax and have not received a notice to file a tax return.

For landlords, this usually means that if rental income arises and HMRC has not issued a self-assessment return, the individual must notify HMRC within six months of the end of the tax year in which the income first arises. In practical terms, this means by 5 October following the end of the relevant tax year.

This obligation applies regardless of whether:

• the property is let on a long-term basis or occasionally,

• the landlord considers the income to be small, or

• the landlord believes HMRC already “knows” about the property.

Limited exceptions

There are limited circumstances where notification is not required. For example, where rental income is fully covered by the £1,000 property allowance, no notification is required because no tax is due.

However, these exceptions are narrowly drawn. In many cases, landlords incorrectly assume they fall within an exemption when in fact they do not. This article assumes the general position applies.

Consequences of failing to notify

Where an individual fails to notify HMRC of their chargeability to tax, failure-to-notify penalties may apply.

These penalties are calculated as a percentage of the tax unpaid as a result of the failure and can range from:

• 0%, at the lowest end, to

• 100%, or

• up to 200% where offshore income or gains are involved.

The level of penalty depends on several factors, including:

• the taxpayer’s behaviour (careless, deliberate, or deliberate and concealed),

• whether the disclosure was prompted by HMRC or unprompted, and

• the quality of the disclosure once the failure comes to light.

Reductions in penalties are available where the taxpayer provides full cooperation and helps HMRC establish the correct tax position.

HMRC’s approach to deliberate failures

HMRC is particularly robust where it considers that a failure to notify was deliberate.

A failure may be treated as deliberate where the taxpayer:

• knew they had rental income,

• understood that tax might be due, and

• nevertheless failed to notify HMRC.

Even where there is no attempt to hide the income, HMRC may still argue that the failure was deliberate, leading to higher penalties than many taxpayers expect.

Case study: deliberate but not concealed

The risks of failing to notify were illustrated in Locke v Revenue and Customs [2025] UKFTT 956 (TC).

In this case:

• HMRC contacted the taxpayer in December 2022 about two rental properties that it believed were generating undeclared rental income.

• The taxpayer stated that he had disclosed rental income back in 2006 by filing a self-assessment return and that HMRC had subsequently written to him saying no further returns would be required.

• HMRC reviewed the 2006/07 return and found that no rental income had in fact been declared.

• Rental income for 2020/21 and 2021/22 was only disclosed after HMRC opened compliance checks.

The First-tier Tribunal found that:

• the taxpayer had a clear obligation to notify HMRC of his chargeability for the later years,

• the earlier HMRC letter was not misleading, as no rental income had been disclosed at the time, and

• the failure to notify was deliberate but not concealed.

As a result, the penalties imposed by HMRC were upheld.

This case highlights an important point: silence from HMRC does not remove the obligation to notify, particularly where earlier returns were incomplete or incorrect.

Common misconceptions among landlords

Failure-to-notify cases often arise because landlords mistakenly believe that:

• HMRC already knows about the property,

• rental income is too small to matter,

• inheritance of a property does not trigger immediate tax obligations, or

• an old HMRC letter or historic return removes future obligations.

In practice, none of these assumptions are safe.

Practical tip

HMRC provides an online tool to help landlords assess whether they need to notify the receipt of rental income. While this does not replace professional advice, it can be a useful starting point:

https://www.gov.uk/guidance/check-if-you-need-to-tell-hmrc-about-your-rental-income

Key takeaway

Receiving rental income—whether by choice or by circumstance—brings tax obligations with it. One of the most important and frequently overlooked is the duty to notify HMRC where tax may be due and no return has been issued.

Failing to notify can result in penalties that significantly exceed the tax itself, particularly where HMRC considers the failure to be deliberate. Early action and proactive disclosure are critical in reducing exposure.

How we can help

If you have recently started receiving rental income, inherited a property, or are unsure whether you should have notified HMRC in earlier years, we can help you review your position and, where necessary, make a voluntary disclosure to minimise penalties. Please contact us to discuss your circumstances.