MPs highlight buy-to-let tax cheats

Thursday, 11 December 2008 1:23 PM

Buy-to-let tax cheats have been highlighted by a new report from MPs - as the number of 'reluctant landlords' entering the market grows.

The public accounts committee (PAC) found £2 billion is lost each year from tax cheats, with buy-to-let landlords named as an "area of risk".

The report highlighted the tax loss of buy-to-let landlords failing to declare their income and capital gains on properties.

Chris Norris, at the National Landlords Association (NLA), warns for new reluctant landlords used to only paying tax by PAYE, dealing with all the tax issues can be daunting.

"Reluctant landlords are a key group and the HMRC is likely to target them. Filling out a self-assessment tax form can be complicated," he said.

"People often forget all expenses in running a business are tax deductable. Expenses such as mortgage interest and refurbishment."

He advised new landlords - with their number rising as homeowners choose to sit on the sidelines of the market as prices drop - to seek help from a professional tax accountant and join a professional body, also to contact HMRC and use the help on offer at their local offices.

"It is obvious there are people trying to fiddle the taxman and the taxman is aware of rental income not being declared," said Malcolm Harrison at the Association of Rental Letting Agents (ARLA).

However, he explained once all the expenses in running a flat are taken into account - including mortgage interest, agency service charges, changes to the property - the tax bill should be small.

He also warned that if a letting agent is used, then HMRC will be able to access their books and see what a landlord is earning.

For new landlords, Mr Harrison advises they use a letting agent.

"Letting a property is not rocket science, but there are a lot of details. For many reluctant landlords they want on concentrate on the day job.

"By with being a landlord there are a number of things to consider such as detailed inventory, credit checks on tenants, deposits, switching utility bills."

A spokesperson for HMRC explained landlords are being contacted about their obligations to cut taxes.

"HMRC has been working closely with professional bodies throughout this process and they have been supportive of the approach we are taking," she said.

"This is a process of writing to people to remind them of their responsibilities in relation to tax on rental income and ensuring that everyone pays the right tax under the law."

The PAC report hit out at HM Revenue and Customs (HMRC) for failing to achieve its aims of stemming the cash-in-hand culture.

Edward Leigh MP, chairman of the committee said: "HMRC is apparently making little ground in its efforts to diminish the cash-in-hand culture operating in the UK."

HMRC spent £41 million in 2006-07 on encouraging people and businesses into the formal economy and detecting and imposing sanctions on those who operate within the hidden economy.

From 2003-04 the department detected 30,000 cases of people not declaring taxes, a rate of detection of only 1.5 per cent. The amount of tax raised from detected cases has, however, increased by 13 per cent since 2003/04.

The department has failed to match their goals of detection. They only completed 2,000 investigations compared to the 5,500 planned, which amounted in £2.6 million tax assessments opposed to the planned £32.5 million.

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