Buy-to-let landlords face letter of the law over tax dodges

Buy-to-let landlords face letter of the law over tax dodges

Buy-to-let investors who have dodged taxes on the money they make from letting or selling a property are to be targeted in a major crackdown which accountants say will net millions of pounds for HM Revenue & Customs.

Hundreds of letters were sent to landlords this week in the first stage of what the Revenue is calling its Property Campaign. Offenders will be forced to repay taxes dating back six years and could face additional fines and penalties equalling the full amount of tax owed.

The Revenue says the first letters will be used to assess initial reaction and are likely to be followed by thousands more.

It is understood that officials at the Revenue have trawled through data from hundreds of letting agencies and cross-referenced the results against stamp duty returns to compile a database of landlords whom it believes may not have paid any or enough tax.

Two groups of landlords have been identified: existing taxpayers, where there is information showing that they have let a property but not disclosed any income; and individuals with no tax record, but where the Revenue is aware that they have let a property.

The letters will demand details on all property investment activity going back six years and request a detailed breakdown of costs such as repairs and professional fees. If landlords fail to reply, the Revenue says it will, in extreme cases, begin criminal investigations. If landlords reply promptly and fully disclose their.....continued below

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income, fines and other penalties may be less likely, a spokesman adds.

Peter Goodman, senior tax partner at accountants Wilkins Kennedy, says: "There has often been speculation that Revenue & Customs would start a compliance drive against landlords but up until now, inquiries have been pretty piecemeal. This is a real change in tactics.

"Individuals who receive these letters need to take them seriously. If they do owe tax, they should consider early disclosure as part of a negotiated settlement. This may reduce the penalties they incur.

"People who refuse to cooperate could ultimately face criminal prosecution."

There are understood to be nearly one million buy-to-let landlords in the UK, with the numbers ballooning in recent years. It is estimated that 340,000 loans and remortgages were granted to buy-to-let landlords in 2007 - more than the total number of loans to first-time buyers.

Many landlords have portfolios of 50 or more properties. As the numbers have soared, the Revenue has become concerned that many may have gone unreported. Goodman says: "As well as the possibility of an initial bonanza for Revenue & Customs, they will also be hoping to gather the intelligence needed to ensure that future property sales by these investors do not slip off their radar."

Rising rents over recent years means that even highly geared buy-to-let investors may be making a profit from their investments that they need to pay tax on. The unpaid capital gains tax on sales of buy-to-let investments, which have not been disclosed, could also be huge, Goodman says.

To see the HMRC letters in full, go to: tax.org.uk/showarticle.pl?id=6552

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