Time is running out for landlords to tell the tax man about their und​eclared rental profits or capital gains under a disclosure scheme offering cut rate penalties.

HM Revenue & Customs (HMRC) has threatened that if they have to chase landlords for failing to file tax returns, they could face investigations going back over their financial affairs for up to 20 years.

HMRC has offered easy payment penalties to landlords confessing their back-dated tax issues under the Let Property Campaign for the past year, but feels too few are coming forward to take advantage of the scheme.

The tax authority estimates the UK has 1.63 million private landlords and only 500,000 regularly file self-assessment tax returns.

Now, discount penalties will only be available to landlords who contact HMRC before tax inspectors start working through a list of suspected tax avoiders.

HMRC has compiled the list of thousands of landlords from data collected from letting agents, mortgage lenders, the Land Registry, local councils and utility companies.

Letters are due to go out to those who have not filed tax returns threatening fines of up to 100% of tax owed going back two decades.

Under the Let Property Campaign, penalties are between 0% and 30% of tax owed.

“We are increasing our compliance activity and will be contacting landlords who we have identified as failing to pay tax on undeclared income,” said an HMRC spokesman.

“Anyone we contact will automatically be excluded from the Let Property Campaign, so will not have the benefit of lower penalties.”

The spokesman explained that landlords who may have filed returns but made careless mistakes will face penalties stretching back six years, but anyone considered deliberately avoiding tax will face a sterner investigation.

“If we write to a property owner, any disclosure will be treated as prompted and will not qualify for the lower penalty regime,” said the spokesman.

The Let Property Campaign covers individual property investors who owe income tax or capital gains tax on buy to lets, houses in multiple occupation (HMOs) or holiday lets in the UK or overseas.

Find out more about the Let Property Campaign