More overseas landlords are coming forward to admit not paying tax on their rental income after the government targeted suspected avoiders, new research has shown.
According to accountants and business advisers Moore Stephens, in the year to April 397 overseas-based buy-to-let landlords admitted to HM Revenue and Customs they had not been paying tax on the funds they received from tenants.
This was up 61 per cent on the 246 that came forward in the previous year.
HMRC has been targeting suspected tax avoiders with threatening letters alongside launching a ‘Let Property Campaign’, aimed to encourage landlords to voluntarily disclose that they had not paid the full amount.
Moore Stephens suggested HMRC’s mailshot to thousands of landlords suggested the government knew many of these buy-to-let consumers were not declaring the full tax they owed.
If landlords don’t respond within 30 days of receiving these letters from HMRC, they are liable to face penalties based on what HMRC believes they owe or criminal investigations for non-compliance.
HMRC is using its Connect database — which can cross-reference taxpayers’ details against estate agent client lists — to gather information on landlords, and it is estimated Connect now generates 80 per cent of the government’s tax investigations.
HMRC also access data from the Tenancy Deposit Schemes, Land Registry data and even social media profiles to cross reference buy-to-let landlords against people declaring rental income.
Jonathan Green, partner at Moore Stephens, said: “More and more landlords are starting to approach HMRC to avoid the risk of being hit with heavy sanctions further down the line.”
“HMRC is ‘offering the chance’ to landlords to bring their tax affairs up to date. However, the letters being sent out by HMRC make it pretty clear that it is threatening a full-blown investigation.”
Mr Green went on to say that while most landlords were aware they owed tax, many others just didn't know what their responsibilities were.
He added: “In some cases, people have inherited buy-to-let properties and others think that because they are only making a modest profit it doesn’t count.
“It is very easy to make mistakes or get behind on your paperwork for a buy-to-let investment.”
Mr Green added that landlords must seek professional advice if they realised they had underpaid tax.
Carl Shave, director at Just Mortgage Brokers, said independent financial advisers and mortgage brokers needed to play their part in the process of landlords understanding their tax requirements as they had a duty to highlight these responsibilities to their clients.
He said: “HMRC are showing their continued intent for cracking down on tax avoidance and overseas landlords are no exception.
“Landlords are under increased pressure in regard to tax and legislation with numerous changes being introduced within the sector. However, ignorance is not an excuse in matters with such importance and property investors, professional and accidental alike, have a responsibility that goes hand in hand with property ownership.”