The tax man focuses on buy to let investors

By MoneyhighStreet Staff. Published on May 30, 2007 This post currently has no comments.

House prices

With the United Kingdom facing the most substantial budget
deficit in the coming year than any other nation in Western Europe, HM Revenue
and Customs has announced plans to extract additional taxes from approximately
80,000 landlords who may not have paid enough in taxes over the course of the
past six years on their buy to let investments.

Generally, the Revenue will be
looking at three classifications of U.K. buy to let investors when it comes to
questions about due and owing tax liability:

landlords who have claimed too much tax relief
landlords who have failed to declare rental or lease payments received from properties
capital gains that were realised on the sale of buy to let investments

In dealing with the situation involving these buy to let
investors, the Revenue has the ability to go back and collect taxes deemed to
be delinquent for a period of six years. Moreover, the Revenue has the ability
to impose penalties at its discretion that can equal the amount of taxes
determined to be owing and unpaid. Finally, the Revenue can also charge
interest on these amounts.

Beyond these investors, a group of so-called “ghost
landlords” will also be targeted. These are property owners who have not
declared themselves officially as the owners of real estate.

There is some recognition on the part of officials with the
Revenue that the laws governing tax related issues and buy to let property can
be complicated and confusing in the manner in which different provisions impact
one another. Officials realise that some property owners have made honest
errors in computing their tax obligations. Therefore, the first step that will
be taken in regard to dealing with potential tax obligations and these property
owners will be the release of information booklet to them to assist in
explaining the tax requirements.

Over the course of the past ten years, buy to let mortgages
have been easy to come by. Additionally, the housing market generally in the
U.K. has been robust and thus attractive to investors. In Britain today there
are more than 400,000 buy to let landlords. Nearly £95 million was borrowed by
these investors in 2006 alone. The outstanding buy to let mortgage loans are
now at £9.5 billion.

As was noticed, the Revenue does believe that most of the
buy to let landlords who may owe taxes at this time are not tax evaders as
such. Therefore, the Revenue is offering to these property owners a 90 percent
reduction in the usual penalty assessment if these individuals voluntarily deal
with their tax liability before June 22. The Revenue hopes that many buy to
let investors and property owners will take advantage of this amnesty period
and deal with their past due tax obligations by this point in time.

Landlords in Britain are said to be facing a capital gains
tax obligation that tops £4 billion according to Landlord Mortgages which is a
mortgage broker that specialises in buy to let financing. According to
Halifax, Britain's largest home mortgage lender, the average price of a home in
the country in 2006 was approximately £179,000.

In regard to those individuals who do not voluntarily comply
with the legal obligations when it comes to tax liabilities, the Revenue is
taking very firm action. For example, there is a daily penalty of £60 for
those individuals who are persistent in their failure to file their
self-assessment returns in a timely manner. Additionally, there is an
indication that the Revenue will remove the cap on penalties all together in
some particularly egregious circumstances.

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