Thursday, 9 October 2008

HMRC in new clampdown on Landlords

HMRC (the Taxman) is set to target Landlords in a new clampdown on Buy to Let rental income.

New powers will give Government inspectors the right to turn up and inspect Landlords records in their own homes. Letters have been sent out by HMRC warning Landlords about new measures which come into force next April.

Earlier this year HMRC sent out 500 letters to Landlords to test whether there was a case to specifically target Landlords. HMRC routinely requests details from local government authorities, its Stamp Office and letting agents about rental income and the sale of properties - and that this information will be "data matched" to identify individuals who have not made the appropriate tax returns.

Some newspapers have even claimed that HMRC will be checking property to rent adverts in local shop windows in an attempt to identify as many Landlords as possible.

HMRC are reported to be especially concerned that many Buy to Let investors have incorrectly assumed that they can offset the full cost of a repayment mortgage against their profits for tax purposes. With over 1 million Buy to Let mortgages in the UK there is a lot of potential for investigation.

It is claimed that many landlords do not fully understand the tax rules surrounding their investments, which allow them to offset only a certain proportion of their mortgage payments against their tax bills. Only the interest payable on a mortgage loan can be offset against tax, so any landlord with a repayment mortgage is liable for tax every time they pay off part of the capital they have borrowed.

Our experience suggests that most Landlords opt for interest only mortgages which can be offset against tax, but our advice is to carefully check what you are allowed to claim. HMRC have advised all Landlords to check with their website to ensure that they correctly reporting their status to them. For more information click here HMRC Website. We recommend that all Landlords should seek professional tax advice and correctly declare all your earnings. If you don’t HMRC could be knocking on your door.