Buy-to-let investors targeted

Major crackdown on offenders that fail to pay tax

Buy-to-let investors who have not paid tax on money from letting or selling a property are to be targeted in a major crackdown that could net millions of pounds for HM Revenue & Customs (HMRC).

Hundreds of letters have been sent to landlords in the first stage of what HMRC is calling its Property Campaign. Offenders will be forced to repay taxes dating back six years and could face additional fines and penalties equalling the full amount of tax owed.

HMRC says the first letters will be used to assess initial reaction and are likely to be followed by thousands more.

It is understood that officials at HMRC have trawled through data from hundreds of letting agencies and cross-referenced the results against stamp duty returns to compile a database of landlords whom it believes may not have paid any or enough tax.

Two groups of landlords have been identified: existing taxpayers, where there is information showing that they have let a property but not disclosed any income; and individuals with no tax record, but where HMRC is aware that they have let a property.

The letters demand details on all property investment activity going back six years and request a detailed breakdown of costs such as repairs and professional fees. If landlords fail to reply, HMRC in extreme cases will begin criminal investigations. If landlords reply promptly and fully disclose their income, fines and other penalties may be less likely.

There are understood to be nearly one million buy-to-let landlords in the UK, with the numbers increasing substantially in recent years. It is estimated that 340,000 loans and remortgages were granted to buy-to-let landlords in 2007, more than the total number of loans to first-time buyers.

As the number of buy-to-let properties has increased, HMRC have become concerned that many may have gone unreported. Rising rents over recent years also means that even highly geared buy-to-let investors may be making a profit from their investments that they need to pay tax on. In addition the unpaid capital gains tax on sales of buy-to-let investments, which have not been disclosed, could also be considerable.