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Landlord’s Last-Minute Bid to Slash £30k Penalty Fails


Row of houses


Landlord Loses Battle Against HMRC: Tribunal Rules in favour of HMRC in Income Tax Penalty Case


In a ruling by the First-Tier Tax Tribunal, a landlord who attempted to reduce a substantial tax penalty has found his efforts thwarted. Mr G N Khan, the appellant, faced off against HMRC over income tax assessments and penalties related to undisclosed rental income from several properties. The Tribunal upheld the majority of HMRC’s claims, delivering a stern warning to landlords about the importance of timely tax disclosures.


Background of the Case

The case, which was heard via a remote video session on July 3, 2024, revolved around Mr Khan's failure to notify HMRC of his income tax liabilities from 2004/5 to 2012/13. The dispute centred on rental income derived from properties owned by Mr Khan, one of which was occupied by his brother and his family. The total tax originally assessed was £49,620.52, with penalties totalling £33,887. However, after adjustments, the disputed amounts were reduced to £36,005.50 in taxes and £24,450.40 in penalties.


The Failed Adjournment Request

The hearing began with an attempt by Mr Khan's legal representative, Mr Nadeem Khan, to adjourn the case. He argued that he had only recently been instructed and lacked adequate time to prepare. However, HMRC objected, noting that this was the fourth adjournment request, with previous ones granted due to the appellant’s ill health. The Tribunal, acknowledging the history of delays and the lack of evidence justifying another adjournment, denied the request and proceeded with the hearing.


Key Issues and Tribunal Findings

The Tribunal addressed two primary issues:

  1. Did Mr. Khan receive rental income from a property occupied by his brother?

  2. Was Mr Khan’s disclosure to HMRC “prompted” or “unprompted”?


Rental Income Dispute: Mr. Khan argued that the property in question, Gaviots Close, was occupied by his brother and did not generate rental income. However, he failed to provide sufficient evidence, such as mortgage or bank statements, to support this claim. HMRC, therefore, assessed the property as if it had generated rental income, applying a full rent calculation with a wear and tear allowance. The Tribunal upheld this assessment, emphasizing that the burden of proof lay with Mr. Khan.


Disclosure Dispute: Mr. Khan contended that he had made an unprompted voluntary disclosure about his rental income through HMRC’s Let Property Campaign (LPC) before the tax authorities initiated an enquiry. Despite presenting evidence of correspondence with HMRC dated December 2013, HMRC challenged the authenticity and sufficiency of this disclosure, arguing it was not detailed enough to qualify as “unprompted.” However, the Tribunal sided with Mr Khan, ruling that his disclosure was indeed unprompted, which affected the calculation of penalties.


Outcome and Implications

While the Tribunal accepted that Mr Khan’s disclosure was unprompted, it did not significantly alter the outcome. The penalties were slightly reduced, but the Tribunal upheld the validity of the tax assessments. The final decision confirmed that Mr. Khan's disclosure timing did not sufficiently mitigate his overall liability.


A Cautionary Tale for Landlords

This ruling serves as a critical reminder for landlords regarding the necessity of proper and timely tax disclosures. The case illustrates the severe consequences of failing to comply with HMRC's requirements, including substantial financial penalties. For property owners, the message is clear: ensure full compliance with tax obligations or face costly repercussions.


Mr Khan has the right to apply for permission to appeal this decision, but the Tribunal’s ruling sets a strong precedent, reinforcing HMRC's stance on tax compliance and penalties.

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