Letting out residential property? How you could avoid an HMRC Tax investigation

Letting out residential property? How you could avoid an HMRC Tax investigation
0 comments, 08/10/2014, by , in Real Estate, Taxes

An HMRC tax investigation is not just something that happens to high profile celebrities like jockey Lester Piggott and comedian Ken Dodd. In its relentless war against tax evasion, the Revenue is now targeting much smaller fry who think they might be able to avoid paying their fair share. Everyone from Ebay traders, mobile hairdressers and plumbers have all recently come under the taxman’s spotlight and it’s now turning its focus onto the estimated 900,000 residential landlords who have so far not registered with HMRC. As a result, leading tax advisers, Baker Tilly, are warning anyone who fits into this category to take advantage of a current amnesty and hold their hand up. This could avoid a serious HMRC tax investigation and possible penalties of up to 100% of the tax on undeclared rental income.

It seems that by owning up now to one’s oversight or misdemeanour, you are not only likely to suffer significantly lower penalties but it will afford time for a tax accountant to help you compile the maximum allowable expenditure that can be claimed against income from rents.

In order to preclude an unnecessary HMRC tax investigation, residential landlords should take early advantage of the Revenue’s “ Let Property Campaign,” as the amnesty is called, while it still lasts. Not only will this minimise possible penalties but it will also allow you to benefit from more generous payment terms.

Landlords should not underestimate how easy it is for the taxman to cross-reference other databases to identify which of the UK’s 1.4 million residential landlords are not one of the 500,000 or so who are already registered with HMRC. Unfortunately, it doesn’t matter to the tax authorities whether or not you are a professional buy-to-let landlord or someone who has just drifted into letting out a property like one you may have inherited or just moved out of while you work out a contract overseas. At the end of the day, persistent failure to declare income from rents leaves you just as exposed to a possible HMRC tax investigation.

The Revenue estimates that it has been losing over £500 million a year in lost tax receipts because of undeclared rental income. This is no mean sum but, spread over 900,000 landlords, this works out at an average of well under £1,000 a head – a small price to pay in order to avoid a full blown HMRC tax investigation that might end up delving into the rest of your affairs.

The fact is that a great many people do not actually class themselves as landlords and are not the slightest bit concerned about the possibility of the dreaded HMRC tax investigation. Examples of this might be someone who has a lodger in the house paying over the £4,250 tax free threshold for such income or, alternatively, it could be someone who owns a holiday home that they use themselves but which they also let out to third parties.

As has already been stated, avoiding the nightmare of an HMRC tax investigation is not going to cost an arm and a leg for most private landlords, especially after taking into account all allowable deductions. Many people taking proper tax advice might find that they are actually making a loss for tax purposes which can be carried forward and used against any future profits.

Of course, a very large proportion of landlords who are unaware of just how seriously the Revenue views even inadvertent tax evasion will come out in a rash at the very mention of a possible HMRC tax investigation. It is essentially this group for which the amnesty was designed and, as soon as you notify the tax authorities of your intention to bring your affairs up to date, you are allowed up to three months to get all your figures together including the all important allowable expenses which your tax adviser will be able to help you with. So there is no need to get into an instant panic at the thought of an HMRC tax investigation.

If you need help and advice on any aspect of your tax affairs Baker Tilly’s team of HMRC tax services experts are ready to discuss your requirements.

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