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Landlords told: Get your tax in order
Private landlords are being warned to get their tax affairs in order to avoid being caught in a crackdown by tax inspectors.
Phil Bates, who runs a Cheshire accountancy firm with over 100 landlord clients, says HMRC has stepped up its campaign to bring to book investors believed to be avoiding paying tax due on rental properties.
Figures for 2013-14 – the latest available – show that tax inspectors obtained more than £130m as a result of enquiries into underpayments of capital gains tax alone.
Fewer than 500,000 taxpayers are registered with HMRC as owning second properties although the Revenue estimates the true number of landlords is nearer to 1.5m.
“A landlord must pay tax on profit just like any other business but only after allowable expenses have been deducted. This is where there is sometimes uncertainty” he says.
“For example, allowable expenses do include reasonable repairs and maintenance to keep a property in good order but do not cover renovation costs incurred prior to letting, although these can usually be claimed for capital gains tax purposes when the property is sold” he adds.
Potential penalties for landlords failing to pay their tax are severe: as much as 35 per cent of the potential lost revenue is standard, where HMRC makes initial contact with landlords as opposed to landlords pro-actively declaring to the Revenue.
Tax authorities can now also gather information from a range of sources, including letting agents who in some circumstances are obliged to divulge dealings with landlords.
