Buy-to-let landlords face tax crack down

Buy-to-let landlords are set to face the attention of the taxman over undeclared rental income – even if they have now sold the property in question.

According to wealth advisors Route Group, HM Customs and Revenue (HMRC) has launched a clampdown in recent weeks, forcing buy-to-let investors to consider their tax position.

"Given current market uncertainties surrounding residential property, and the increased costs of mortgage finance, some smaller landlords are looking to call it a day on their buy-to-let investments and sell up," said Simon Pimblett, head of research and development at Route Group.

"While this might mean that they are facing fewer liabilities in the short term, if they have not declared the rental income on these properties, they could still be facing a significant legacy tax bill in addition to any capital gains tax (CGT) charges," he added.

Research from Money Centre finds the buy-to-let investment market is now increasingly depressed, with 48 per cent of landlords concerned over the future direction of the sector.

"HMRC has started to focus strongly on the issue of undeclared rental income and now has the technology to track down those who have 'overlooked their obligations'," continued Mr Pimblett.

"HMRC can now cross-reference information from the Land Registry, stamp duty records and property agents’ records with taxpayers’ self assessment to identify culprits.

"Should they believe a landlord has not submitted the correct returns, they have the right to request detailed income and expenses statements for the last six years."

In further bad news for investors, the latest research from the Association of Residential Letting Agents (ARLA) finds average rents have fallen nine per cent over the last month.

"Earlier this year, HMRC conducted a pilot exercise whereby it sent out letters to landlords it believed were in breach, and has promised to widen the search during the latter half of 2008," continued Mr Pimblett.

"Therefore, we recommend that all landlords, get their records in order – prior to an unwanted letter or phone call from their local tax office, who will not only claim back what is owed but could also impose interest and penalties," he concluded.

Chris O'Toole