Don’t let the taxman spoil the B2L party

If you are involved in the buy-to-let market, you could be forgiven for feeling confused. Is Revenue & Customs planning a crackdown or not? Some recent reports stated that landlords who don\'t declare their income or claim too much tax relief could face big bills from the taxman.

Apparently, Revenue & Customs has identified 80,000 landlords whose paperwork is not in order and who could owe the government money – well, so one newspaper claimed. We were told property owners would be forced to pay up in the latest bid to swell the Treasury’s coffers.

It was feared that because the taxman can claim back unpaid money from up to six years ago, some landlords could be forced to sell up. But just as landlords were running to their accountants for help, Revenue & Customs denied it was cracking down.

A spokesman for Revenue & Customs says: “We are not planning a tax crackdown or to target landlords. We met representatives of the accountancy profession to get their views on how we can best inform landlords of their existing obligations to report their property income to us and how we can help landlords make accurate returns that don’t require further work. This will benefit taxpayers and Revenue & Customs.”

Paragon Mortgages was quick to say there is no evidence to suggest that landlords are any less diligent than the population at large in submitting timely and accurate tax returns.

In broad terms, tax matters for landlords are straightforward. Tax is payable on rental in-come after the costs of running and financing the purchase and development of the property are deducted. But interest paid on any proportion of loans not taken out for purchase or development are not business expenses.

It’s important that people are clear on the tax implications of buy-to-let, especially now it is no longer only the domain of professional investors or the wealthy. Many people have made the most of the property boom by getting involved in buy-to-let. Your landlord clients must avoid getting into trouble with Revenue & Customs at all costs.

Given the size of the buy-to-let market, it makes sense for Revenue & Customs to take a close look to see if it is missing out on income. Research by Mintel shows that one million more home owners will be looking to rent out second properties by 2010 and that around two million people own second homes. The firm says of these, some 50% – that’s around 3% of all home owners – are buy-to-let landlords. And the number of buy-to-let mortgages is expected to reach 361,000 this year – up almost 10% on last year.

Buy-to-let is big business. Don’t let it become even bigger business for the taxman.