HMRC targets landlords with property businesses

Landlords with properties held in incorporated businesses are being warned to check that they are fully compliant with their tax affairs

HMRC has launched the latest nudge campaign targeting buy to let landlords who hold property in businesses, which may have failed to report capital gains tax liability on their self assessment tax returns, warns the Chartered Institute of Taxation.

HMRC said the campaign will only target ‘a small population of taxpayers who incorporated their property business in the tax year 2017/18 but reported no capital gains tax (CGT) liability on their self assessment tax return’.

The letter asks the taxpayer to check that they have correctly calculated the incorporation relief available to them, and refers to some specific technical areas that may be relevant with references to HMRC guidance.

Landlords who receive the letter have 30 days to respond to HMRC or expect the tax authority to open an investigation with a view to issuing a discovery assessment.

Key issues to check include ensuring that the capital gain arising on incorporation was not greater than the value of the property business that was transferred.

When calculating the incorporation relief available, the amount of any gain held over must not exceed the value of any shares received. In addition, the calculation of incorporation relief must not include any sums credited to director’s loans.

HRC warned that ‘care should be taken to ensure that the facts are correctly established and assessment time limits are considered’.

If the taxpayer needs to disclose an error, they must submit a disclosure to HMRC using a dedicated email address provided in the letter.

If the taxpayer, after considering their position, believes that the information they have provided on their tax return is correct and that they do not need to make a disclosure, the letter asks them to let HMRC know by emailing another dedicated email address provided in the letter.

Interest will be charged on any late payments once the calculations have been corrected.

If HMRC does not receive a response within 30 days they will consider the case further and may decide to make a discovery assessment under section 29 Taxes Management Act (TMA) 1970, subject to statutory assessment time limits. HMRC also has the power to amend the claim under s9ZB TMA 1970, subject to the legislative criteria and time limit being met.

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