HM Revenue and Customs (HMRC) have launched hundreds of investigations into the tax affairs of taxpayers they believe have under-declared or failed to declare taxable income from their buy to let activities.
Two thousand investors are expected to be targeted in a drive to identify taxpayers who have failed to declare investment income. It is thought that the first wave of enquiry letters includes many sent to taxpayers who have already sold their buy to let properties and therefore probably thought it unlikely that their under-declarations would be discovered.
Where the evasion of tax is wilful (i.e. fraudulent), HMRC can collect tax for up to 20 years after it is due, plus interest. They can also levy penalties of up to 100 per cent of the unpaid tax.
HMRC’s exercise is in addition to their usual enquiries in this area which focus on excessive expense claims and, in particular, on whether taxpayers have claimed their mortgage payments in full, as opposed to the interest on the mortgage, as a tax deduction. Only the interest element of a mortgage is allowable as a deduction for Income Tax purposes, not the capital element.
Tax law for owners of rental properties of different types is very complex and quite often poorly understood by taxpayers. Contact Adams for advice and support.
Spring 2008 |
