The taxman has a new initiative targeting landlords. HMRC’s Hidden Economy Team is looking at people who don’t declare rental income and special risk analysis and intelligence teams (RIATs) are looking for Tax Returns showing the wrong rental profit.
How could the taxman find out that I’m letting a property?
Tax Inspectors have many sources to check gross rents received by individual landlords. These include “Special Returns” issued each year to Lettings Agencies plus Housing benefit information from local authorities. University lists, letting websites, local papers, shop windows and supermarkets are checked for information, as well as tax officers patrolling streets looking for “to let” signs. Since December 2003, the payment of Stamp Duty Land Tax on property purchases has meant the completion of a return with all personal details, including National Insurance number. Disputes with tenants can also result in malicious reports being made to the tax office or the informer hotline. HMRC also get reports from all EU countries on properties purchased there and will be looking out for undeclared income on holiday homes.
How does the Tax Office use the information?
Tax Officers are writing to people it suspects may be buy-to-let property investors but who haven’t declared the rents (or Capital Gains Tax when the property is sold), using so-called interventions letters. Where rents have been declared HMRC are particularly looking at whether the full rents have been declared, if capital repayments of mortgages are being wrongly deducted from profits, and especially at the source of any deposit money. This can then lead to a full blown tax investigation of any business you run. With the huge number of property investors now in the UK this could be a lucrative move for HMRC.
What do I do if I get an “Intervention letter”?
The law requires HMRC to issue a formal written Notice of Enquiry before starting an enquiry under Self Assessment. If you haven’t sent in a tax return then the formal Tax Enquiry Notice does not apply. Any reply you give will be compared with other sources of information. If you get such a letter and are concerned that this could lead to a more intensive tax inspection then you may need specialist help.
In any event it can be highly beneficial to make a voluntary disclosure of any tax irregularities to HMRC. This can minimise the chances of prosecution and substantially reduce penalties. It allows you to manage the disclosure rather than have Tax Inspectors enquiring intrusively into your business and financial affairs; possibly visiting your letting agent, tenants, banks and business contacts to help with their tax enquiry. Badly handled disclosures can lead to costly and intrusive tax investigations.
Lynam Tax has a vast amount of practical experience in managing tax disclosures and of dealing with HMRC tax enquiries, including into property investors. We can advise you on the best course of action and if appropriate, help you manage any necessary disclosures in order to obtain the optimum outcome for you, your business and your family.
For a free, private, no obligation consultation, call Paul Lynam today on 0845 643 9997