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Taxman Targets Buy-To-Let

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The taxman is taking a much tougher line with owners of holiday homes and buy-to-let properties who try to follow MPs' example by ''flipping'' the place they call home to avoid capital gains tax (CGT).

HM Revenue & Customs (HMRC) is using a new computer system to compare data on stamp duty, which is paid by most homebuyers, with CGT declarations by owners of more than one property, in a bid to deter tax avoidance.

Accountants say two recent tribunal rulings in HMRC's favour, when separate appeals by Anthony Metcalfe and Paul Favell were dismissed, show that more evidence will be required to avoid tax in future.

Profits on the sale of your home are CGT-free provided it was your principal private residence (PPR) – that is, you regarded it as your permanent home – for any period, which could be as short as one week, within the past three years.

MPs who used the principal private residence exemption to avoid thousands of pounds in CGT include John Bercow, the Speaker of the House of Commons; Andrew Lansley, Secretary of State for Health; and Alistair Darling, former Chancellor of the Exchequer.

Mike Warburton, a partner at accountants Grant Thornton, said: "I suspect that The Daily Telegraph coverage of MPs' expenses has alerted taxpayers to the opportunity of doing the same, but it has also fired up HMRC to scrutinise claims more carefully.

"The Treasury needs all the tax it can raise. The moral is, if you want to claim PPR relief, get the occupation set up properly and collect all the evidence you need to support your claim.

"For example, you should be able to show that you paid council tax and utility bills at that address. I also suggest inviting the vicar around for tea – that is, someone who can speak up for you and who the tribunal will believe."

If some of that sounds frivolous, then bear in mind that information considered in evidence by tribunals has included fuel bills which suggested a property was unoccupied for part of a winter when the taxpayer claimed it was his home.

Chas Roy-Chowdhury, a director of the Association of Chartered Certified Accountants, said: "It is a matter of fact whether a property is your home or not. But, to demonstrate the facts, you should seek to move in before the sale and talk to the neighbours to let people know that you live there.

"Make sure you change things like bank accounts and your correspondence address. Don't expect to pull the wool over HMRC's eyes.

"In the current climate, HMRC know exactly how many people are trying to sell investment properties to curtail their losses. Play it straight along the lines I have suggested and do not make up stories to HMRC. Make sure the facts are the facts.

"I think HMRC is taking a tougher line on this issue. There is probably little sympathy for those taxpayers who are perceived to be affluent enough to buy investment properties making a lot of gains for little effort."

John Whiting, a director of the Chartered Institute of Taxation, agreed. He said: "It does seem that the publicity around 'flipping' has led to HMRC looking harder at this issue. In particular, it is more likely to question whether someone really has occupied a property. More people will have two or more properties on their hands, either through buy-to-let activities, helping the children or sheer inability to sell.

''People need to realise that this will inevitably raise CGT issues and some care and attention with making appropriate elections for which property is a main residence, coupled with making sure actual residence can be properly substantiated, is going to be increasingly important," said Mr Whiting.

A spokesman for HMRC said: "We are getting better, rather than 'tougher', in this area. Before Connect, our new computer system, it was much harder to identify where the taxpayer had not told us about a taxable gain on the disposal of a second property.

"Connect has enabled us to identify far more cases where this is potentially an issue. We have also become much better at identifying the relevant indicators of occupancy."

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What about rental income? That's where the real tax evasion is with BTL.

Only bigtime BTL landlords with large amounts of equity in their properties make much profit on their rent.

Thing is that most of my friends who are renting out their properties don't believe me that they have to do a tax return even if they don't make a profit.. which you do.

Amateurs should do tax returns for their loss years. The tax man allows so many deductions it is actually quite easy to show a loss even when you have made a profit and you can carry losses on year after year so you never really have to show a profit.

It should be very easy for the HMRC to chase people not doing their taxes properly these days as all tennant deposits legally need to be held in a deposit holding scheme therefor allowing easy access to the names of all britains landlords.

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Interesting you bring this up.

Letter came in the post from HMRC for a previous occupier of the rented property I am in - one may assume that he is the LL and possibly has not declared he no longer lives in this place?

The temptation to open it was huge but returning it to HMRC will probably have more effect,

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I've obviously had my head in the clouds, but I was amazed to see that you are CGT free if you have lived there for any length of time in the last 3 years.

You just need to spend a weekend in your BTL property every 3 years and you're CGT free. Amazing!

It's a month actually (or at least it was when I did my tax) but it is still amazing. The CGT free element actually applies to the last three years rather than to the whole period, but that's still substantial.

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You just need to spend a weekend in your BTL property every 3 years and you're CGT free. Amazing!

No No No No No.

You always only get the final three year CGT free, whether you lived there in year 1, 2, 3 ... or year 20. (You also get the period that you lived there CGT free, provided, of course, that it wasn't one of the final 3 years)


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No No No No No.

You always only get the final three year CGT free, whether you lived there in year 1, 2, 3 ... or year 20. (You also get the period that you lived there CGT free, provided, of course, that it wasn't one of the final 3 years)


Yep. OK - sorry - got excited for a minute there.

One of my mates has a business model which was buy - renovate (and therefore occupy as PPR) - let for a few years whilst you buy another one - sell the first - re-invest - etc.

I think he went through a couple of houses like this before the property market stagnated. He's probably cr****ing himself right now.

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