HM Revenue and Customs (HMRC) has announced that it is writing to individuals it suspects may be buy-to-let property investors but who have not declared the rents received. This exercise is one of a series of new type “interventions” and those who have received an “intervention” letter should not ignore it.
The following FAQs are intended to explain the issues but for personal advice on an intervention letter please contact us.
How could HMRC find out that I am letting a property?
Can a dispute with HMRC lead to other problems?
Why are HMRC concentrating on property letting?
Is it normal for HMRC to make this kind of approach for information?
How could HMRC find out that I am letting a property?
HMRC has always searched the small ads for businesses that have not registered. Increasingly, it is using less obvious sources of information to trace taxpayers. “Ghost” officers are known to check the advertising cards in shop windows and supermarkets. If you use the services of a letting agent they can be obliged to provide a list of all their clients who own let property, and local authorities who rent social housing. Since December 2003, the payment of Stamp Duty Land Tax on property purchases has involved the completion of a return with all your personal details, including your National Insurance number. Disputes with tenants can also result in reports being made to the tax authorities – these reports can often be misleading or exaggerated.
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Can a dispute with HMRC lead to other problems?
HMRC frequently seeks verification of the letting income and expenses. If you have not informed your mortgage lender that the property has been let out you may face difficulties with the lender. You should remember that HMRC can also go to the lengths of asking the mortgage lender for a copy of the original mortgage application form – which will include statements you made to the lender about the sources and level of your income. Relations with letting agents can be soured by an enquiry.
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Why are HMRC concentrating on property letting?
We have seen a steady stream of property letting enquiries in recent years. HMRC regard this as a lucrative area, particularly as there is the prospect of capital gains tax when the property is sold. The holding of investment property is regarded as indicating a certain level of personal wealth, and buy-to-let investors are seen as entrepreneurial individuals who may have other undeclared sources of income. It is relatively easy for the tax authorities to obtain clear information about the income, from the records of agents or from tenants, making the cases simple to work.
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Is it normal for HMRC to make this kind of approach for information?
Until recently, no. The law requires HMRC to issue a formal written notice before starting an enquiry under Self Assessment. If no tax return has been submitted the formal enquiry notice does not apply. HMRC ran a trial under which it approached the taxpayer less formally, in a number of different ways including by telephone. These are referred to as “interventions”. It says that the response from this trial was that taxpayers favoured a less formal approach, and it intends to work this way in the future. Remember that any reply you give will be kept on record and could be compared with other sources of information. The initial approach may be friendly enough, but the final result could be painful.
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