Tax shock on buy-to-let
Almost 80,000 landlords who may have claimed too much tax relief are facing a shock as the HM Revenue & Customs looks to claw back unpaid tax from as far back as six years.
The taxman is preparing to clamp down on tens of thousands of buy-to-let property owners who may not have paid enough tax or failed to declare the amount of rent they receive from the property, or a capital gain made on its sale.
The Revenue has the power to impose penalties, which can reach the same value of the unpaid tax bill, which could see some people face bills so large that they may have to sell their property. The campaign is the latest attempt to extract as much tax as possible and boost revenue for the Exchequer, with Britain on target to have the biggest budget deficit in Western Europe next year. As part of the campaign to tighten up the buy-to-let market, landlords who have failed to declare themselves as property owners will also be targeted. Information from banks, tenants and letting advert will be used to establish these "ghost" landlords.
Landlords have to pay income tax on the rents they receive from tenants, but under the law they can offset some of the tax they pay if they have an interest-only mortgage. It's understood many who have under-declared have incorrectly claimed deductions for these mortgage repayments. Buy-to-let mortgages have become more easier to obtain, and this coupled with buoyant house prices, has led to a boom in the investment property market over the past decade. Over £94 billion was borrowed in 2006, and the figure of buy-to-let landlords is now standing at 400,000.
Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, commented:
Buy-to-let investors are generally not tax evaders. Many think the mortgage interest is at such a level that it covers the rental income and they don't have any additional tax to pay. But the tax situation is so complex they may well have to pay.
A leaflet on rental income and capital gains tax will be sent by the taxman, alerting landlords to potential discrepancies in their records. And the Revenue is offering a 90 per cent discount on the usual penalties that apply if individuals confess to unpaid tax on offshore income before June 22. Landlords in Britain face a capital gains tax bill of more than £4.1 billion, with landlords facing an average bill of £48,600 based on 2006 housing prices, according to figures from buy-to-let mortgage broker Landlord Mortgages.
