If you have received an HMRC nudge letter about your rental income, do not ignore it. An HMRC nudge letter usually means HMRC has identified information suggesting you may need to review your tax position but receiving one does not by itself prove you have underdeclared rental profit.
The letter is a serious prompt from HMRC to review your position, but a one-to-many letter is not itself a formal compliance check. The good news is that you still have a chance to sort things out on your own terms. If you notify under the Let Property Campaign, you must disclose within 90 days of the date of your notification acknowledgement, and HMRC must receive both the disclosure and payment by that deadline unless payment arrangements are agreed by then. If you do not do this, and HMRC finds out later, you could face higher penalties and, in exceptional cases, possible criminal investigation or prosecution.
What Is an HMRC Nudge Letter for Rental Income?
HMRC sends nudge letters, also called "one to many" letters, encouraging landlords to join the Let Property Campaign to report any unpaid tax, interest and the appropriate penalty.
Some HMRC nudge letters may ask you to confirm your tax position or explain why no disclosure is required. The exact format, response options, and any suggested deadline will depend on the specific letter issued, so you should read it carefully before responding.
You are not automatically required to respond to a nudge letter in a specific format, but you should not ignore it. HMRC uses these letters to prompt a review of your tax position, and if concerns remain, it may decide to take further compliance action. It is important that any response you provide is accurate and consistent with your records.
Seeking professional tax advice before you respond is strongly recommended.
How Does HMRC Know About Your Rental Income?
This is the question most landlords ask first. The answer is that HMRC has access to a wide range of data sources that build a detailed picture of your income and property activity.
The Data Sources HMRC Uses
HMRC can use information that it lawfully receives or already holds, including open-source material such as Companies House and Land Registry records, and it also receives digital platform reporting under the reporting rules for digital platforms.
Under the UK’s digital platform reporting rules (effective from 1 January 2024), platforms like Airbnb and Booking.com must report host income data to HMRC, with the first reports submitted from January 2025.
HMRC can obtain information from a range of lawful sources and may compare that data with its own tax records to identify potential discrepancies. If HMRC believes that rental income may not have been fully declared, it may contact the individual to review their tax position and, where appropriate, request further information or take compliance action.
HMRC gathers this data through legal gateways from other government departments and third parties, comparing it against its own tax records. The information is filtered so that the more serious cases are investigated by an HMRC officer, and cases where it is unclear whether tax is owed are selected for a nudge letter.
Who Needs to Declare Rental Income to HMRC?
Many landlords are unsure exactly when they must report rental income. The rules are straightforward once you understand the thresholds.
The Property Allowance: Your £1,000 Tax-Free Threshold
You may be entitled to a £1,000 property allowance each tax year. If your total rental income is £1,000 or less, you may not need to pay tax or report it, provided you meet the eligibility conditions. If your rental income is more than £1,000 but up to £2,500, you should contact HMRC. You will usually need to complete a Self-Assessment tax return if your rental profit is more than £2,500, or if your total rental income exceeds £10,000 before expenses.
What Counts as Rental Income?
Under the Let Property Campaign, the following situations are covered: renting out a single property, renting out multiple properties, renting out a room in your main home that exceeds the Rent a Room Scheme threshold, holiday lettings, living abroad for more than six months while renting out a UK property, and inheriting a property that you then let out.
How Rental Profit Is Taxed in 2025/26
You pay Income Tax on your net rental profit, which is your total rental income minus allowable expenses.
The standard Personal Allowance for 2025/26 is £12,570, but it reduces by £1 for every £2 of adjusted net income over £100,000 and is zero at £125,140. For England, Wales and Northern Ireland, non-savings income is taxed at 20%, 40% and 45% after allowances. Scottish taxpayers have different Income Tax bands and rates for non-savings income.
Allowable Expenses You Can Deduct
You can deduct allowable expenses from your rental income to work out your taxable profit. These typically include letting agent fees, accountant’s fees, insurance, repairs and maintenance (but not improvements), utility bills, council tax and services paid by the landlord (such as cleaning or gardening), as well as ground rent and service charges. Legal fees may also be allowable where they relate to short-term lets (typically under one year) or the renewal of a lease for less than 50 years.
For individual landlords of residential property, finance costs such as mortgage interest are no longer deducted from rental income. Instead, since 6 April 2020, relief is given as a basic rate (20%) tax reduction based on the finance costs incurred.
A Real-World Example
James owns a buy-to-let flat and earns £850 per month in rent (£10,200 per year). After deducting allowable expenses of £2,800, his rental profit is £7,400. He also earns £30,000 from employment, giving him total income of £37,400.
Assuming he is taxed in England, Wales or Northern Ireland and has the full Personal Allowance, his income falls within the basic rate band, so his rental profit would generally be taxed at 20%, resulting in a tax liability of £1,480 on that profit.
If James has not registered for Self-Assessment, HMRC may identify discrepancies by comparing available data with its records and may contact him to review his tax position.
The Let Property Campaign: How to Disclose Undeclared Rental Income
The Let Property Campaign is for landlords who owe tax through letting out residential property in the UK or abroad. It is HMRC's structured route for voluntary disclosure and consistently offers better outcomes than waiting for HMRC to investigate.
An unprompted disclosure usually attracts lower penalty ranges than a prompted disclosure, and a non-deliberate failure may in some cases be reduced to nil. Whether a disclosure is unprompted depends on the facts, not just on whether a nudge letter has been received.
Even if you have already received a nudge letter, using the Let Property Campaign is still far better than doing nothing.
Step-by-Step: How to Register and Disclose
Step 1 - Notify HMRC
You must tell HMRC of your intention to make a disclosure as soon as you become aware that you owe tax on your letting income. At this stage, you only need to tell HMRC that you will be making a disclosure. You do not need to provide any details of the undisclosed income or the tax you believe you owe. Use the Digital Disclosure Service.
Step 2 - Receive your reference numbers
After you notify HMRC, HMRC will write to you with a disclosure reference number and a payment reference number.
Step 3 - Calculate what you owe
You have 90 days from the date of your notification acknowledgement to calculate and submit your full disclosure, including all unpaid tax, interest and penalties. HMRC recommends gathering records as early as possible.
Step 4 - Pay what you owe
When you send your disclosure you must pay what you owe. If you cannot pay by the deadline, you must make payment arrangements with HMRC by that date. Contact the Let Property Campaign helpline on 0300 123 0998 to arrange a payment plan if needed.
How Many Years Must You Disclose? HMRC Assessment Periods Explained
The number of years you need to go back depends on your behaviour. HMRC applies three categories.
In some cases, HMRC can go back up to 20 years to recover the tax owed. The type of behaviour also affects whether there is a penalty to pay on the tax paid late.
Here is how the time limits break down:
Penalty Rates for Undeclared Rental Income
Penalties are calculated as a percentage of the tax HMRC would have collected had the income been declared correctly. The rate depends on your behaviour and whether your disclosure is unprompted or prompted.
Penalty Summary: Unprompted vs Prompted Disclosures
Behaviour | Unprompted Disclosure | Prompted Disclosure(after nudge letter) |
|---|---|---|
Reasonable care | No penalty | No penalty |
Careless | 0% to 30% | 15% to 30% |
Deliberate | 20% to 70% | 35% to 70% |
Deliberate and concealed | 30% to 100% | 50% to 100% |
For offshore matters, penalty ranges depend on category, behaviour and timing; in the most serious cases they can reach 200%.
HMRC also allows you to claim any previously undeclared tax reliefs as part of your disclosure, which can reduce the amount you owe.
HMRC also rewards the quality of your disclosure. It considers three things when calculating penalty reductions: the accuracy of information you provide (telling), whether you assist with their enquiry (helping), and whether you give access to records when requested (giving).
What Happens If You Ignore an HMRC Nudge Letter?
Doing nothing is the highest-risk option available to you.
Ignoring a nudge letter increases the risk of HMRC taking further compliance action. If HMRC notifies an enquiry or compliance check before you notify under the campaign, the disclosure is unlikely to be accepted under the Let Property Campaign, and penalties are likely to be higher, but not automatically at the top of the statutory range.
After HMRC's checks, if it finds that a disclosure is materially incorrect, it will look to charge significantly higher penalties. In exceptional circumstances, an incomplete disclosure may be considered under HMRC's Criminal Investigation Policy.
Your Action Checklist: What to Do When You Receive a Nudge Letter
Use this checklist as your starting point:
Common Mistakes Landlords Make That Trigger Nudge Letters
Deducting full mortgage payments
Only the interest element was ever allowable, and since April 2020 even that has been replaced by a 20% tax credit for residential property. Many landlords still calculate profits incorrectly as a result.
Not registering for Self-Assessment on time
If you do not usually send a tax return, you need to register by 5 October following the tax year you had rental income.
Treating improvements as repairs
Capital expenditure on improvements cannot be deducted. Only like-for-like repairs and maintenance are allowable under HMRC rules.
Assuming short-term lets are tax-free
Renting on Airbnb or similar platforms is taxable. The Furnished Holiday Lettings regime was abolished from 6 April 2025, meaning short-term let properties are now taxed as standard residential lets.
Making Tax Digital for Landlords: Why Acting Now Matters
Making Tax Digital (MTD) for Income Tax will become mandatory from 6 April 2026 for landlords and self-employed individuals with qualifying income over £50,000. This will extend to those with income over £30,000 from 6 April 2027. Further expansion to lower income levels has been announced but is not yet in force.
Under MTD, affected landlords will need to keep digital records and submit quarterly updates to HMRC using compatible software. This increased reporting frequency means HMRC will have more regular visibility of income, making it more difficult to overlook or underreport rental profits. If you have undeclared income from previous years, resolving it now while the Let Property Campaign remains available is generally the most practical approach.
Conclusion: Key Takeaways for Landlords Receiving HMRC Nudge Letters
Receiving an HMRC nudge letter is a serious prompt to review your tax affairs, but it is not a formal compliance check. It usually indicates that HMRC has identified information suggesting your position may need attention. Acting early and making a voluntary disclosure through the Let Property Campaign can help reduce potential penalties compared to waiting for HMRC to open an enquiry.
The £1,000 property allowance may mean some landlords have no tax to pay, but this depends on individual circumstances and should always be checked. With Making Tax Digital for Income Tax starting from April 2026 and expanding from April 2027, HMRC will receive more regular updates, increasing visibility of rental income. If you are unsure about your position, seeking professional advice before responding or making a disclosure is strongly recommended.
FAQS:
No. HMRC’s “one to many” letters, often called nudge letters, are not formal compliance checks. HMRC uses them to encourage taxpayers to review their tax position and correct anything that may be wrong. You should still take the letter seriously, because HMRC may take further action if concerns remain.
Usually, yes. Receiving a nudge letter does not automatically stop you from using the Let Property Campaign. However, if HMRC has already opened an enquiry or compliance check before you notify under the campaign, your disclosure is unlikely to be accepted under it.
If no tax is due for a particular year, you do not need to include that year in your disclosure. This may happen where allowable expenses reduce the profit to nil or create a loss. It is still important to check the figures carefully before deciding not to disclose a year.
No. HMRC says a separate notification is needed for each disclosure. In practice, each person must deal with their own share of the undeclared rental income.
You should still act quickly. HMRC’s Let Property Campaign guidance says you should pay what you owe when you make your disclosure. If you cannot pay in full, you should contact HMRC to discuss payment arrangements before the deadline.
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