HMRC targets overseas-based UK landlords not paying tax

Nearly 400 overseas based buy-to-let landlords have disclosed unpaid tax on rental income to HMRC in the last year as the tax authorities intensifies its campaign to net offshore landlords hiding income

HMRC has been mailshotting thousands of UK landlords as part of its Let Property Campaign, suggesting it knows that they are not declaring the full tax they owe.

Overseas landlords, many of whom are UK expats rather than wealthy foreign investors, are now coming forward in response to the campaign, which is designed to encourage landlords to voluntarily disclose to HMRC that they have not paid the full amount of tax on their rental income.

Over the last tax year, 397 overseas-based buy-to-let landlords admitted to HMRC that they had not been paying the tax on their rental income, up 61% on the 246 that came forward in the previous year, according to accountants Moore Stephens.If landlords do not respond within 30 days of receiving a letter from HMRC, they are liable to face penalties based on what HMRC believes they owe, or even criminal investigations for non-compliance.

HMRC is using its immense artificial intelligence (AI) database, Connect, to gather more information on landlords. Connect allows the tax authority to cross-check activity across innumerable information sources from property disclosures on tax returns to estate agents’ client lists and land registry data, as well as social media profiles and extraordinary spending patterns to identify instances of tax avoidance and evasion.

 It is estimated that Connect now generates 80% of HMRC’s tax investigations.

As many landlords do not use estate agents when letting property, HMRC can also access data from the tenancy deposit scheme 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.’

Endless changes to property tax law in recent years, as well as the non-residential capital gains tax rules (NRCGT), are also causing confusion for landlords, particularly those living overseas who may not be to date with UK tax law, while others fail to even know what their responsibilities are.

Green said: ‘In some cases, people have inherited buy-to-let properties and others think that because they are only making a modest profit it does not count. It is very easy to make mistakes or get behind on your paperwork for a buy-to-let investment.’

‘However, with HMRC using every means possible to track tax avoiders down, landlords must seek professional advice once they realise that they have underpaid tax.’

Sara White

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