HMRC targets buy-to-let investors

HM Revenue and Customs (HMRC) has a new initiative to identify untaxed rental income and gains. How will it gather this information and what are the consequences for landlords?

How does HMRC gather information on property income and gains?

HM Revenue and Customs (HMRC) routinely requests details from local government authorities, its Stamp Office and letting agents about rental income and the sale of properties. As part of a new initiative to identify untaxed rental income and gains, the information supplied will be 'data matched' to identify individuals who have not made the appropriate tax returns.

With effect from 1 April 2009, HMRC will have the power to turn up and inspect business records without prior notice. For individual landlords, this power extends to property rental records.

This means that for the first time tax inspectors will have the right to turn up at an individual's home, without notice, demanding to see the business records if the landlord keeps their property rental records at home. However HMRC cannot enter any part of the premises that is used exclusively as a private dwelling.

For more details on HMRC's powers, please click here.

What are the consequences for landlords?

Under HMRC's new 'intervention' process your first indication that something is wrong maybe a phone call from an Inspector. If he suspects from the call that correct tax returns have not been made of rental income or capital gains this will lead to HMRC opening an enquiry into your tax affairs, with a view to collecting the tax due on any omitted income.

Under HMRC's new penalty regime, penalties of up to 100% of the additional tax due can be sought, together with interest charges from the date the tax should have been paid.

In more serious cases, where the deliberate omission of such income from tax records has been concealed (such as in an offshore bank account), we have seen individuals subjected to criminal prosecution for tax evasion.

Phil Espin, Tax Director in Grant Thornton's National Tax Investigations team comments, "The voluntary disclosure of any omission is looked upon favourably by HMRC and a better tax position can frequently be obtained with minimal HMRC scrutiny. If you have any concerns about reporting property income or gains on your tax return, then we recommend that you seek specialist advice as soon as possible."

Further details about the service offered by Grant Thornton's National Tax Investigations team can be found by clicking here.

Please click here to contact us if you would like further advice on any of the above.