A crackdown by HM Revenue and Customs prompted a 69 per cent increase in landlords declaring unpaid tax - from 101 in 2017/18 to 171 in 2018/19.
HMRC’s Let Property Campaign offers landlords lower penalties if they make a full disclosure of the money they get from rents rather than waiting for officials to discover they have not paid enough tax.
Buy-to-let landlords in the Capital who are suspected of avoiding paying tax have been sent letters warning them of the consequences of tax evasion.
Mark Giddens, partner at accounting group UHY Hacker Young, said the mailshot campaign had encouraged buy-to-let landlords in Edinburgh to declare unpaid tax – partly to avoid the full-blown tax investigation that HMRC could have put them through.
He said: “Focus on Edinburgh’s buy-to-let landlords is clearly intensifying, as the buy-to-let market is becoming a key source of unpaid tax for HMRC. The number of landlords in Edinburgh coming forward and declaring unpaid tax suggests this is paying off.
“Under-declaring rental income and failing to pay Capital Gains Tax on the sale of buy-to-let properties has seen some buy-to-let landlords in Edinburgh slapped with heavy penalties and even sentenced to prison.
“Landlords are wise to contact HMRC and declare unpaid taxes, rather than facing big fines and possible criminal prosecution.
“HMRC is now ignoring the heavy administrative work involved in establishing and prosecuting tax fraud and showing their intent to expose any buy-to-let landlords that ignore their tax duties.”
The Let Property Campaign was launched in 2013 and was originally intended to run for 18 months but has since been extended indefinitely.
HMRC estimated up to 1.5 million landlords across the UK were underpaying tax worth as much as £500m a year.
If HMRC catches landlords who have not paid the right amount, it can reclaim up to 20 years’ worth of payments. It can also fine the landlord up to 100 per cent of the value of the unpaid tax and bring criminal charges.
Landlords who admit an honest mistake with underpaying tax are likely to see the tax office reclaim tax going back only six years and will face smaller fines, if any at all.