Buy-to-let landlord campaign fails to fill £500m tax gap

Despite HMRC’s campaign to target underpayments of tax due on rental properties, less than 3% of estimated eligible landlords have used the let property disclosure facility, according to data from Saffery Champness, which is warning that property taxation is likely to see a greater focus as landlords come under scrutiny over their tax compliance.

In its original announcement for the campaign in 2013, the government estimated that up to 1.5m landlords had underpaid or failed to pay up to £500m in tax between 2009 and 2010.

Those originally targeted included those who own more than one property, specialist landlords who rent to students, people with holiday lets and those who let houses in multiple occupation.

However, a freedom of information (FOI) request has shown that in the past five years just 35,099 people have made voluntary disclosures to HMRC, only 2.3% of the individuals originally identified. In addition, the campaign so far has recovered just £85m, approximately 17.1% of the anticipated payments.

The FOI request showed the most common reasons given for disclosures are either a ‘failure to notify HMRC’, or ‘taken reasonable care’.

James Hender, head of private wealth at Saffery Champness, said: ‘Looking at the data from the FOI, of the large number of taxpayers who stated that they had either failed to notify HMRC of their original liabilities or hadn’t taken reasonable care, many would likely have been unaware that they owed anything at all.

‘According to HMRC’s estimates, there are clearly many more landlords who have additional tax to pay, but have yet to come forward. If this is the case, then these people would be well advised to contact the taxman sooner rather than later.

‘HMRC has been tightening the net on non-compliance and there are increasingly few opportunities for taxpayers to mitigate the risk of an investigation.

‘This campaign is one of the few that remains open but, with the common reporting standard online and the failure to correct penalty system in place (both of which will affect owners of properties overseas) it is likely to remain that way for only so long.’

Lucy Brennan, partner at Saffery Champness, pointed out that some of the categories which have traditionally brought in substantial tax revenues, notably tobacco, alcohol and fuel, are now set to decline due to changing lifestyle habits.

‘There seems to be a pattern emerging of HMRC targeting other sources of tax revenues, with property being an asset that they could look to levy additional taxes on. This is already in motion, with a raft of tax changes set to hit second home owners and accidental landlords over the next year or so.

‘You only need to look at countries such as France and the US to see that, in comparison, UK property is a relatively lightly taxed asset. The difficulty with bringing in new property taxes is that it is political dynamite and any significant reform could provoke a backlash from property owners of all stripes,’ Brennan said.

Accountancy Daily