21:06 PM, 1st March 2011, About 10 years ago 1
Landlords and property investors are receiving letters from the taxman that seem to ask innocent questions about their property businesses but really have a sting in the tail.
Guest Blog provided by Steve Sims, author of ‘Understanding And Paying Less Property Tax For Dummies’. Steve and his wife Amanda also have a boutique accountancy business which specialises in providing taxation advice and accountancy services for property investors.
These letters are disguised tax investigations – and the consequences of failing to act on them can lead to fines and penalties for failing to file tax returns and pay income tax or capital gains tax.
Identify the letter
The HM Revenue and Customs property tax compliance letter template is standard across the UK.
It reads like this: “I understand you may have received income from property letting, but I am unable to find any record that this income has been notified to HM Revenue & Customs.”
The letter will have ‘Local Compliance’ in the top right hand corner.
What does it mean?
The tax inspector is telling you that he or she knows you have received rent or sold a property other than your home and you have not declared the income or gain.
The letter is an invitation to come clean and submit the financial details or face a full tax investigation.
What happens if I tell the taxman about my rent or capital gain?
You will have to pay the tax owed, plus interest and penalties. Generally, you receive a ‘discount’ for owning up and although you will have to pay the tax owed, you can often negotiate to avoid any penalties and interest.
What happens if I don’t tell the taxman?
The taxman will go after every penny possible – including penalties and interest. It’s likely you will be tied up in producing financial documents going back years.
Is the taxman fishing?
No. In most cases, the taxman has documentary evidence of unpaid tax, ranging from letting agents rent records, property sale information from the Land Registry to housing benefit and electoral roll details from local councils.
HMRC has special property investigations units cross referencing information from tax returns, the Land Registry, local councils and other sources.
What should I do if I receive a letter?
How to find professional advice
If you need a property business check or help keeping financial records and preparing tax returns, a link to Steve’s web-site can be found HERE.
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