HMRC has issued several warnings to landlords in recent months to remind them that profits from rental properties must be declared. They have done this to give landlords the opportunity to admit their earnings before the next stage of the crackdown begins.
There are estimated to be around 1.3 million private landlords in the UK. Unfortunately, less than half of these people are currently declaring extra income from property, which strongly suggests the rest are either in ignorance about their responsibilities, or deliberately avoiding their tax liabilities. Many landlords are ‘accidental landlords’—people who were unable to sell properties when the market crashed, and therefore let them out instead. Now that the market has recovered, many landlords will be looking to sell, which also puts them at risk of capital gains tax.
HMRC Information Gathering
HMRC has lots of information gathering strategies at its disposal, which means it is very difficult to avoid pulling the wool over the eyes of the taxman indefinitely. HMRC will check bank records to see who has taken out a landlords’ mortgage. They can also investigate records at the Land Registry. Deposit Protection schemes are another avenue of investigation.
Reducing Your Tax Liability
• Mortgage interest – There are many ways to reduce the amount of tax you pay. Having a mortgage is actually useful for tax purposes because you can use the interest you pay on the loan to offset your tax bill.
• Maintenance repairs – Every day repairs and maintenance can be used to offset tax, but home improvements cannot.
• Letting expenses – If you pay a letting agent, service charges, accountants’ fees etc, all of these can offset your tax bill.
If you have yet to declare your income from rental properties, time is running out, so don’t delay any longer.
