Important Tax Information for Landlords
Landlords are being warned to ensure that their tax affairs are in order as HMRC is ramping up its ongoing campaign to catch investors believed to be avoiding paying what is due on their rental properties.
The latest figures available (for 2013-14) state that HMRC inspectors collected more than £130m as a result of investigations into capital gains tax underpayments alone.
HMRC estimates that the number of landlords in the UK is around 1.5m, yet fewer than 500,000 are registered with HMRC as owning rental properties.
The law on this issue is very simple. Landlords must pay tax on any profit they make (after expense deductions) just like with any other business.
For example expenses include reasonable repairs/maintenance and letting agency fees but they do not include renovation expenditure incurred prior to letting, although these costs can often be claimed for capital gains tax purposes when the property is then sold further down the line.
The potential penalties for landlords who fail to pay the tax owed are very severe. As much as 35% of the lost revenue is standard, where HMRC has to make the initial contact with a landlord as opposed to landlords promptly declaring their income to the Revenue.
Tax authorities now have the ability to gather information from a wide range of sources, including their letting agents who in some circumstances are legally obliged to divulge their dealings with landlords.
For more advice on this issue, or any other property matter, please contact us on 0114 2413430.