Buy-To-Let Tax Law And Amnesty
Written by renxue January 09, 2008 10:11
Being a landlord is not really a part-time occupation, unless you're renting out a room in your house. Coming as it does, with responsibilities with maintaining your property, managing your investment, and paying regular fees such as maintenance, service and accountancy charges, it really is not a way of getting a stress-free income. And you can add to that the potential problems of dealing with awkward tenants.
Recent market research suggests there are one million UK homeowners who are landlords. Research by the Council of Mortgage Lenders says that at the end of 2006 there were 849,000 buy-to-let mortgages still in hand, with over 330,000 new in the year. The total figures has more than doubled from the 417,500 figure only three years before, in 2003. These are specific buy-to-let mortgages and do not include anyone who has moved home and let out their property under the existing mortgage.
Landlords have to work out the amount of rental income that is taxable, and a small number of landlords make extra profits through tax evasion. Reports suggest that HM Revenue & Customs has identified 80,000 landlords who may have claimed too much tax relief, failed to declare the full amount of rent received from a property, or not declared a capital gain on the sale of a property. It was also reported that HMRC will target 'ghost landlords,' those property owners who have not declared themselves to the tax man to get its full share from buy-to-let owners. HMRC use information from banks, tenants and letting adverts to find those evading their tax responsibilities.
The means will be the new Tenancy Deposit Protection law under which information relating to a landlord's rental income will be sent to the Inland Revenue. Under the new law any deposits given to a landlord must be registered with any one of three agencies chosen by the government, and they will pass the information on to the government. Given that most deposits represent the value of one month's rent with approximately 10-20% added on top, the property's rental value will be fairly easy to estimate, and any tax evasion will quickly be revealed.
HM Revenue and Customs have declared an amnesty for landlords to declare all their taxable rental income up to 22 June 2007, after which any landlord being caught will be in for severe penalties. A landlord who is unsure of their situation is advised to discuss it with a tax inspector, as the penalties are the inspector's discretion. A fine at all may not be avoidable, but open discussion will at least be met with a favourable response. Payment penalties will be based upon a percentage of the total owed, and that percentage may be one hundred percent in some cases. Deliberate fraud may well result in prosecution.
As property prices continue to rise, with immigration continuing unabated, and as today's young people delay buying a house until they're a bit older, there is little doubt that the demand for property to rent will continue strongly. In the last ten years the buy-to-let market has risen from almost nothing to an integral, important part of the economy.