Government seeks to secure debts against homes

Updated: 
The Government wants to start securing people's homes against their tax bill. And that's a bad thing.

Tucked away in the Budget was a proposal that could leave some people fearing house repossession.

HM Revenue & Customs (HMRC) plan to increase the use of charging orders on people with outstanding tax bills. This'll mean more people will face having their properties used as security against their tax bill.

What's a charging order?
Put simply, it's when a debt is secured against something, usually a property that you own. We're used to giving people advice about dealing with charging orders that come about following a county court judgment (CCJ) but it seems that HMRC is going to be using them more frequently too.

If a charging order is granted it means that a debt is secured against the property and an entry is placed on the Land Registry to confirm this. So if the property is sold, the debt will be repaid out of the money the sale generates.

Who does the tougher HMRC action affect?
Anyone who might owe money to HMRC and struggle to repay it. This'll mostly be those that are self employed, but could apply to anyone who does a self-assessment tax return, which'll now include many people affected by this year's Child Benefit changes.

The move is intended to give HMRC more powers to collect unpaid taxes, so if you've got an outstanding debt to HMRC then you could be hit.

Why we oppose HMRC's use of charging orders?
We've all heard the expression that an Englishman's home is his castle, so it's no surprise that receiving a charging order can be tremendously upsetting. While it's a legitimate tool that can be used when collecting a debt we see it as being an aggressive form of debt collection.

We'd encourage HMRC to explore other methods of debt collection before resorting to taking action that could eventually lead to putting people's homes at risk.

What's good for the goose...
We also worry that this approach by the Government weakens their position when they try to encourage other creditors to show more patience when dealing with people in debt.

The Office of Fair Trading (OFT) criticised RBS Group for their use of charging orders earlier this year, stating they did not give enough consideration for the circumstances of the people involved. We're concerned that it would be hard for the Government to make similar demands in future given their stance on collecting tax debts with charging orders.

Do charging orders lead to people losing their property?
Usually not. A charging order doesn't give any rights to force the sale of a property. The property could only be sold if a further court order was obtained, called an "order for sale". The majority of charging orders do not lead to an order for sale.

Usually creditors will apply for a charging order to get security against a debt and are not particularly interested forcing people to sell their property. If they were to apply for an order for sale there would be a hearing at a county court and they'd have to show strong enough evidence for a district judge to approve it.

If you're worried about debt, a charging order or a CCJ then we'd recommend you get in touch with us for advice. You can do this through our free online advice tool Debt Remedy.

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