- 1 April 2009: HMRC given new powers to inspect landlords’ records (possibly even in their own homes!)
- Over 11% of households in Leicester UA are rented from a private landlord or letting agency*
From 1 April 2009, the way that HM Revenue & Customs (HMRC) conducts tax enquiries is changing. The new regime for ‘compliance checks’ will affect most businesses, including many residential landlords in Leicestershire. HMRC will be able to use 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**.
Leicestershire hosts three universities and many colleges, which, along with ambitious regeneration plans, provide a strong rental market. Both landlords themselves and the numerous local letting agents will need to be aware of the new rules and HMRC’s approach.
HMRC is likely to use its new powers to launch more detailed enquiries into the tax affairs of companies and individuals whom it perceives as being ‘higher risk’. It has, therefore, never been more important for business and personal records to be kept up to date and for individuals’ tax affairs, including any property dealings, to be dealt with on a timely basis.
Robert Cant, Client Partner at the Leicester office of Vantis, the accountancy, tax and business recovery and advisory services group, advises: “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 Leicestershire 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. Robert explains that it is important for individuals to seek help from a specialist tax adviser if they are faced with a request to provide information.
He comments further: “If you are unsure of your position, seek help. If you have not been declaring rental income, it is best to approach HMRC to set the position right. A voluntary disclosure will be often be welcomed by HMRC and it could ensure any penalties for late notification are kept to the minimum. To achieve the best result, specialist advice on managing the disclosure process is essential.”
The message is clear, 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.
Furthermore, there are some circumstances where a landlord may be able to re-finance their borrowings and obtain tax relief on other existing loans. Finally, it is important that landlords keep a record of any capital costs not able to be claimed against income, to ensure they are offset on the future sale of the property.
Professional tax advice can be obtained by contacting Robert Cant at Vantis in Leicester, on Tel: 011 6272 8202 or by email at bob.cant@vantisplc.com.