Tax warning for buy-to-let landlords
| Published: 7th October 2008 11:51 |
Top tips for landlords
Buy-to-let landlords should ensure their tax affairs are in order in advance of a crackdown by HM Revenue & Customs, according to Target Chartered Accountants.
As from next April, tax officers will be given new powers to visit landlords' homes and inspect their records. Target says that HMRC has been gathering information on landlords from both UK and overseas letting agents for some time and are now planning action against those who have escaped paying tax, knowingly or otherwise.
Mark Tuckwell of Target says there are two common myths amongst buy-to-let landlords: "Those who are making a loss often see no point declaring the income. However that's not the way HMRC will see it. If you have a source of income that is not being declared, you are liable to be found out and questioned. Even if it results in no tax being payable, the hassle factor and cost of dealing with any enquiry can be significant.
"Others mistakenly believe the taxman will never find out. Now, more than ever, HMRC is making use of the information at its disposal to seek out landlords who are not disclosing income. It's far better to come forward and volunteer the information than wait for a knock on the door. Where tax is paid late, significant penalties are applied but there are more generous concessions where information is disclosed voluntarily."
Mark Tuckwell urges landlords to seek advice from a tax adviser and says many are often pleasantly surprised: "In our experience, landlords are often actually paying too much tax because they are not fully claiming all allowable expenses.
"A new client came to us four months ago in something of a panic, with HMRC demanding details of his rental income going back five years. It had issued its own estimates of his tax liability and penalties totaling over £3,500. The result was a tax repayment to him of over £2,000."
In view of HMRC's latest project, Mark Tuckwell has five tips for landlords:
- Seek advice on what expenses you can claim.
- Remember that for tax purposes, if nothing else, a ‘loss' is a good thing so ensure you are making the most of it!
- Take out insurance against the cost of an HMRC investigation.
- Get your tax return professionally prepared and submitted.
- If you are behind on reporting, now is the time to come forward.
He adds: "There are two key things - knowing how to minimise the tax on buy-to-let property and then how to deal with HMRC. A specialist tax adviser will be able to help on both counts."
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