The increase in popularity in buy-to-let mortgages in recent years has led to HM Revenue & Customs (HMRC) targeting landlords over concerns that they may have not paid the correct amount of tax on their rental income.
There are currently over 1 Million buy-to-let mortgages in the UK compared with around 120,000 in 2000, with many people investing in rental property to help supplement their retirement income/fund. HMRC fears that many of these buy-to-let investors do not fully understand the tax rules concerning their investments, in particular, the fact that investors with a repayment mortgage can only claim the interest element of their mortgage payments as a deduction against the rental income.
In addition, HMRC is extremely keen to try to obtain and/or review the information that the landlord provided to the lender when seeking a mortgage. It hopes to identify cases where the income details provided by the landlord are not in line with figures they previously provided to HMRC. Landlords can expect searching enquiries to be made if such anomalies are identified.
HMRC’s move comes with its new information powers in mind [Schedule 36 FA 2008]. These are due to come into force in April 2009 and, amongst other things, they give HMRC the right to inspect landlords’ records (possibly even in their own homes!!). In all likelihood, only those suspected of the most serious tax evasion are likely to merit a knock on the door, but we are yet to fully ascertain how HMRC intends to use these new powers.
Anyone with a buy-to-let mortgage who is concerned that they haven’t paid the correct amount of tax in respect of this income would be well advised to try to resolve matters with HMRC quickly. Voluntary disclosures can significantly reduce the potential financial penalties that HMRC could seek, but professional advice to manage the disclosure process is essential.
Please call Mark Ayre on 0207 549 2944 or complete and submit the online form below if you’d like to discuss matters in further detail.