On the 6th of April 2016, HM Customs & Revenue updated its guidance on its so-called “let property campaign” – essentially, an opportunity for landlords to come clean about the amount of tax they may owe to the Inland Revenue on their buy to let business profits.
The campaign encourages landlords of residential property – whether it is let in the UK or abroad – to make a declaration of any tax that is outstanding. If you fail to get your tax affairs as a landlord in order, the campaign includes the barely concealed threat that HM Revenue & Customs will be down on you like the proverbial ton of bricks – and you may face some pretty stiff penalties.
Completing a tax return may not be the simplest or most straight forward procedure, of course, and many landlords may continue to owe tax through ignorance or misunderstanding of the rules. Others, of course, may have been deliberately hiding the truth of their affairs from the tax man. In either case, the let property campaign offers the opportunity to get everything fully above aboard and in order.
What to do
There are a number of steps to be followed if you wish to participate in the campaign:
- let HM Customs & Revenue know that you want to do so;
- disclose all the income, capital gains, duties and taxes which you have so far not told them about;
- make a formal offer to settle your tax bill – this includes any penalty you think you need to pay to bring your affairs up to date and the tax authorities will consider such penalties in the light of how helpful you have been in the disclosure of your affairs and the reasons for underpayment of tax (whether it was a genuine mistake or deliberate attempt to evade the tax);
- pay the amount owed; and
- answer any questions or requests for further information required by HM Revenue & Customs.
Changes in the tax regime
Already complicated to begin with, the income tax situation for landlords is further complicated by decisions made by the former Chancellor of the Exchequer, George Osbourne, in 2015, the main impact of which do not come into effect until 2017.
The most serious of these changes from most landlord’s point of view is the removal of tax relief paid on your buy to let mortgage – the impact of which was discussed at some length in the media at the time (as reported in the International Business Times of the 8th of July 2015, for example).
A further change, which came into effect from April 2016, was the removal of the wear and tear allowance which had been available with respect to furniture which needed to be replaced in a let property (whether or not you actually spent money on replacing furniture).
Nevertheless, relief is still available – and along with it many other allowance which you may claim as genuine expenses, to offset against your current tax liability. Clearly, if you are going to make a full disclosure of your tax liabilities under the let property campaign, you still need to claim those allowances to which you are entitled and which include:
- the cost of arranging your buy to let mortgage, including any fees you may have paid a broker;
- premiums you pay for building and contents insurance – protection which you may have arranged with us at Cover4LetProperty, for instance;
- letting agency fees, together with any other costs directly connected with finding tenants for your property – advertising, inventories and the drafting of tenancy agreements, for example;
- repairs and maintenance of your let property – but not for any extension, renovation or remodelling of the property;
- professional fees charged by any accountant to employ to prepare your accounts and tax assessment forms;
- your payment of Council Tax;
- the rent, ground rent, or service charges you may need to pay – on a leasehold property, for example;
- utility bills which you are responsible for paying – such as electricity, gas, water and drainage; and
- the direct administrative overheads involved in running your buy to let business – items such as stationery, phone calls and other office expenses.
HM Revenue & Customs warns that it is stepping up its investigations into cases of potential underpayment of income tax by landlords.
Once these so-called compliance checks and enquiries have begun, the individual landlord may not then be able to avail himself of the opportunities granted under the let property campaign.
If you have let slip the opportunities offered by the current campaign, you stand to face penalties of up to 100% of any unpaid tax.
Please note that this information is correct as at July 2016, but could be liable to change, so if you have any questions relating to the campaign, please refer to the Government website.