HMRC cashing in on buy-to-let landlords

lovemoney.com
HMRC cashing in on buy-to-let landlords
HMRC cashing in on buy-to-let landlords



HM Revenue & Customs (HMRC) pocketed £136 million as a result of its investigations into underpayments of Capital Gains Tax last year, mostly from buy-to-let landlords.

That's according to new data obtained by accountancy firm UHY Hacker Young.

HMRC crackdown

The taxman has launched a number of special investigations in the past, targeting specific industries where it believes not enough tax has been paid. For example, in December it announced that it was specifically looking at solicitors. Landlords have also been warned repeatedly that the taxman is watching. Back in August HMRC sent out 40,000 letters to landlords that it suspected were not paying enough tax. The letters warned them to ensure they are paying the corrent amount of tax or else they would face fines and possible criminal proceedings.

Mark Giddens, Tax Partner at UHY Hacker Young said that property investors are now "firmly in the crosshairs" for tax investigations, partially due to a rise in the number of buy-to-let landlords and private property investors operating in the UK.

While some may be making errors in the calculation of tax that they owe, Hacker Young says that rising property prices and bigger profits in the buy-to-let sector mean that taxpayers may recognise the incentive to "deliberately understate" their self-reported tax bill.

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Capital Gains Tax

Capital Gains Tax is payable on the sale, gifting or swapping ('disposal' in taxman lingo) of an asset, where the value of that asset has increased since the point of purchase. It's levied against the increase in value, not the entire value, hence the name referring to the 'gains' that you have made over time.

Some assets are not taxed on the basis of capital gains, but profit on property that is not your main home will be taxed. So if you were to sell a rental property that has increased in value since you, or your business, purchased it, you would be liable to pay the tax.

The tax is levied at either 18% or 28% on any gains over the tax-free allowance of £10,900. You will pay 28% if you pay your Income Tax at either the higher or additional rates (i.e. earning over £31,866 in the 2014/15 tax year). If you pay the basic rate of Income Tax, then you'll pay 18% on any earnings beyond the tax-free allowance that are under £31,866 and 28% on anything above that.

There are ways to reduce the amount of Capital Gains Tax you pay, including the tactical use of ISAs to shelter your money from taxation.

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