Buy to let landlords facing more tax investigations

Middle class investors in property that they 'buy to let' are easy prey for HMRC tax investigators. It's very easy for them, for example, to find out who owns property which is not the registered main residence of someone on the electoral roll.

Most property owners declare their rental income on their annual self assessment tax returns and claim relief for the allowable deductions. They then pay tax on their net profit from renting out property.

The House of Commons Public Accounts Committee has just published a report: HMRC: Tackling the hidden economy. The report highlights the fact that not everyone is honest and that HMRC should do more to collect the unpaid tax on rental income. They want incentives to be publicised to encourage people to come clean. They have also suggested that anyone who fails to declare their taxable income from rental properties should end up with a criminal record.

This is all stern stuff. It's also true that some landlords who fully declare their taxable income claim too much by way of expenses. The most common error being to include the capital element of mortgage repayments. Only the interest charges can be deducted from rental income. This mistake can lead to significant underpayments of tax - even though all of the rental income has been properly disclosed on tax returns.

The potential for a 'crack-down' on buy to let landlords is just one element of a desire to increase the incentives for those who favour the 'cash in hand' culture. I will comment further on this in a separate blog post. In the meantime I should stress that the tax investigation specialist members of the Tax Advice Network are available to advise and support anyone who either wants to come clean or has left it too late and is now the subject of an HMRC enquiry. Experience shows that lower settlements are invariably achieved by SPECIALISTS in such matters rather than dabblers.