Ian Hewitt, Client Partner and specialist in business tax at the Beaconsfield office of Vantis, the accountancy, tax and business recovery and advisory services group, explains the recent changes, which any third party who is advising property investors, should be aware of.
Since April 1, HM Revenue & Customs (HMRC) have held significant new powers enabling them to inspect landlords’ records – possibly even in their own homes. The new regime for ‘compliance checks’ will affect most businesses, including many residential landlords in the Thames Valley area, as well as those business people and sole traders who claim expenses for ‘use of home as an office’.
HMRC will be able to use their new powers to visit premises, to inspect books and records and/or ask taxpayers or third parties for documents and further information, sometimes without prior warning.
HMRC believes that many landlords do not appreciate that only the interest element of their loan repayments can obtain tax relief. It’s possible, therefore, that a number of private landlords in the Thames Valley may inadvertently be making exaggerated claims on their tax returns.
However, at the same time, many landlords may not appreciate all the tax reliefs they may be entitled to claim, such as wear and tear allowance on furnished properties. Additionally, even where rental losses are incurred, it is important to quantify and claim these losses, as they can be utilized against future profits.
Safeguards have been built into the legislation to ensure that the new powers are used reasonably. The circumstances that can lead to an unannounced visit will be rare, and officers do not have the right to enter any parts of a premises used solely as a dwelling. But it is important for individuals to seek help from a specialist tax adviser if they are faced with a request to provide information.
Individuals that are unsure of their position are encouraged to seek help. Landlords that have not been declaring rental income would be advised to approach HMRC to set the position right. A voluntary disclosure will be often be welcomed by HMRC and it could ensure that any penalties for late notification are kept to the minimum. To achieve the best result, specialist advice on managing the disclosure process is essential.
In summary, it is vital that individuals entering the world of property investment are aware of both the obligations they face and the tax-saving opportunities that may be open to them. Landlords should take timely advice, not only about their income tax position, but also with regard to minimising capital gains tax and inheritance tax.
Professional tax advice can be obtained by contacting Ian Hewitt at Vantis in Beaconsfield, on Tel: 01494 675 321 or via contact form at Ian Hewitt.