Revenue and Customs are about to target buy to let investors
Revenue and Customs are about to target buy to let investors who have not paid the correct amount of tax. They have been gaining information from a computer system that traces letting advertisements. They have also received tip offs from thousands of other property investors.
Landlords who think they may have paid the wrong amount of tax can declare mistakes before 22nd June and pay a lower penalty of 10% rather than the normal 100% under the Revenues tax amnesty.
The Revenue has a lot of information gathered about landlords and whilst they understand that mistakes can be genuinely made those intending to evade tax will come under investigation.
Income tax must be paid on all rental income but there are allowances that may be claimed. Claims can be made for any mortgage interest paid. For this reason it is better to get an interest only mortgage rather than a repayment mortgage. Landlords can also claim for letting agents fees, accountancy costs, buildings and contents insurance premiums and of work done for the tenants such as gardening and cleaning. The cost of renewing white goods and furniture and furnishings can be claimed and the easiest way of claiming for these is to claim 10% of the annual rental for wear and tear.
Details of costs and income must be kept for six years in case the Revenue has any queries.
Landlords that think they may owe the Revenue money should contact them as soon as possible as this will go in their favour rather than the Revenue having to do the chasing.
If paying too much tax is the problem the best thing to do is write explaining this or fill in another tax form. If a refund is due this will be paid together with interest. Claims can be made for tax paid over that past six years.
The number of investors selling properties when their tenants’ leases come to an end has risen from 4.1% in the last quarter of 2006 to 5.2% for the first quarter of 2007.
As long as landlords are aware of all aspects of investing in buy to let properties the market is still good but capital growth will not be as good as it has been and savings may be needed to cover any shortfalls that may result.
The demand for rental properties is very high with more immigrants, the lack of properties and with young couples who are unable to afford to buy property.
Non business asset taper relief can be claimed if the property being rented has been owned for more than three years. It this is sold within three years tax is payable on 100% of the gain, this is reduced by 5% a year until 60% is reached after ten years.
To Cut CGT bills it is worth putting half of the properties owned into a spouses name so that CGT allowances can be used.
If the landlord lived in the property before renting tax is not payable for those years or for the last three years of ownership. A claim can be made for lettings relief worth per owner £40,000. i.e. if the property was owned for seven years and lived in for three then only one years profits will qualify for CGT.
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