Buy to Let Crackdown

 You may be aware of recent media coverage in leading newspapers including The Times, The Guardian and The Independent surrounding a crackdown by HMRC on buy-to-let landlords.
 
HMRC have tried to play down the speculation and taken the unusual step of issuing a statement denying a crackdown and advising it is “planning to take a concerted approach to helping landlords of all descriptions to understand and comply with their tax obligations…”  
 
Whilst HMRC have looked at income from rental properties for a number of years and raised enquiries at a local level in circumstances they felt appropriate their current actions shows a movement towards a more driven compliance approach to tackling the issue en mass. HMRC have confirmed that 500 letters were issued in February 2008 which advised the addressees that they hold information which suggests they may be in receipt of undeclared rents. The results of the exercise will be evaluated before a decision is made as to whether further action should be taken. Although many believe this is only a pilot exercise for further compliance activity already planned for later in the year.
 
This heightened interest in the buy to let property market seems to stem from the fortuitous, from HMRC’s perspective, introduction of the Tenancy Deposit Protection regime from 6 April 2007. Under which deposits received by landlords must be registered with one of the approved agencies running the scheme. The small print in the terms and conditions of at least 2 of the agency providers advises the information received by them may be passed on to other bodies including HMRC and one scheme provider has confirmed that they have already provided information. In the cases of the remaining providers HMRC already have the power to request information from third parties. In fact this power is currently under review with the intention to make compliance by third parties to information requests mandatory or they themselves can be viewed as obstructive to the enquiry process with consequential action.
 
Clearly this provides HMRC with an invaluable database of information from which to act. As well as supplying the names and addresses of the landlords it may contain a plethora of other useful compliance information including date(s) the letting starting, other properties held by the same landlord, bank account numbers and detailed history of monies paid in and out under the scheme. It can also give an indication of the level of rents charged as typically most deposits will be equal to one months rent plus 10% or 20%.
 
It is understood that in addition to identifying individuals not currently “on the radar” the project has a second tier objective of reviewing the level of expenditure claimed by those who are submitting returns, particularly unrepresented individuals, who HMRC suspect may be making excessive claims for items such as loan repayments where relief may have been claimed on the capital element of the repayment in addition to the interest.
 
All in all a thought provoking time for anyone involved in the buy-to-let market and a stark warning of the information available to HMRC and the ways in which they can use it to effect.
Sarah Gwilt - Mortgage Adviser of the Year