Taxman targets buy to let
HM Revenue and Customs is increasingly targeting ‘buy to let’ landlords who are not declaring their rental income on their properties, tax experts at North West-based accountants and business advisor WNJ are warning.They say that people who are letting properties and not telling the taxman risk heavy fines or even criminal prosecution.
The taxman is in the middle of contacting 40,000 landlords in an 18-month campaign asking them to make contact regarding their tax affairs within 30 days – or face action.HMRC’s Let Property Campaign was launched last October to provide people with the opportunity to declare previously undisclosed rental income.
Its estimates indicate that up to £500million in tax is lost each year as a result of the failure of hundreds of thousands of landlords to account for rental income and capital gains arising on investment properties.HMRC is also offering an online training tool to educate owners of investment properties of the tax issues arising where investment property is held.
The training is in the form of a series of short modules, including when and how property letting starts, and what to do; the various types of property income and how they are taxed and PAYE and VAT obligations.WNJ tax partner Matthew Hindle, based at the practice's office in Preston, said: “All income and gains from property are potentially taxable and the onus is on the taxpayer to seek the advice needed to ensure that their tax situation is accurately reported.
“HMRC make use of a vast array of information resources to identify those failing to report their taxable income and gains, including local council records, letting agents’ records, land registry entries and even social media.“Taxable property income may arise from many sources including through the letting of residential property, holiday property or renting out a room in your own home. Even income from short term or temporary letting may be subject to income tax.”
The Let Property campaign is designed to encourage landlords to review their tax affairs and come forward if they have failed to disclose their reportable income and gains accurately.Matthew added: “Whilst there is no guarantee penalties will be avoided, and interest is likely to be applied to any shortfall in tax paid, the penalty regime takes into account the amount of cooperation provided by a taxpayer in calculating the penalties due.
“These should therefore be much more lenient where a taxpayer voluntarily discloses an error than if HMRC approach them.“It must be emphasised that HMRC’s activities under the Let Property Campaign will not mean that HMRC will not enquire into the tax affairs of individuals during the period of the campaign or afterwards. “The campaign therefore offers an opportunity to approach HMRC and correct any past errors before these are identified through investigation.”