Landlords warned of taxing times

Shropshire landlords who have invested heavily in residential properties must beware of the tax implications.

Mike Russell, who leads the property and construction sector team at Dyke Yaxley Chartered Accountants in Shrewsbury, said the current difficulties in the housing market had led to a boom in lettings.

“Buying properties to let has become a popular investment, particularly when so many families cannot afford to buy their own home, and so there are many people looking to rent instead.

“But HM Revenue and Customs has launched a campaign to catch landlords who may have failed to declare the income they have received from rental properties, and their enquiries will date back up to six years,” he added.

Mike said the Revenue would be issuing letters to all taxpayers who they suspect may have an income from property.

“It’s believed that they will take the names from letting agency lists and stamp duty land tax returns and it’s vital that you reply within 30 days.”

The income involved includes income from renting out a room in your home, buy-to-let property income and income from a furnished holiday letting business.

“Some landlords may have claimed too much tax relief on their expenses, or failed to declare rent received or a capital gain on the sale of property.

“All these types of income have their own rules and regulations, concerning the expenses that can be claimed, and the appropriate loss relief and capital allowances,” said Mike.

“Remember to only deduct the interest and not the capital element of mortgage repayments and be aware that you can also use the equity in your own home to fund buy to let properties.

“Also, there may be landlords who have unclaimed losses from rental property and capital gains and inheritance tax problems that need to be addressed in the future.”

Mike said the Revenue would not only be calculating unpaid tax from as far back as six years ago, but also interest on late tax payments, and maybe a penalty for income that should have been declared.

“So double check your facts and figures, as many landlords could find themselves facing huge tax bills if they have misunderstood the rules.

“If you’re worried that you may have breached the guidelines, seek professional accountancy help as soon as possible, in order to clarify your position.”