Jump to content
House Price Crash Forum

Landlords and tax on rental income


Recommended Posts

4 hours ago, Drummer said:

I admire the faith (hope?) that the people have on this thread for:

1) The landlord being an upstanding citizen and declaring the correct tax owed; and

2) HMRC being a well-oiled machine (like public sector bodies are known for) and doing their job properly.

I think the confidence certain HPCers have in landlords and HMRC is misplaced, but time will tell.

A bit of context. The recent NIC change is slated to raise about £150m/year* by 2021. Compare the newspaper front page headlines and BBC coverage of the NIC hike to their reaction to Section 24. The newspaper front pages ignored Section 24 and the BBC don't seem to understand it. Their reporting of it is basically non-existent. The NIC change garnered more interest.

Now consider the money on the table. If you include consent-to-let there are probably about £300bn worth of BTL mortgages in the market. If the property is leveraged at about 60% that's assets amounting to £500bn. If those assets generate a 'gross yield' of 5% on average then that is £25bn of rent being paid every year, all of which is income to some individual.

If the government can gradually remove the investors' ability to deduct the mortgage interest expense and if all of that rent represents income accruing to higher rate taxpayers, paying tax at 40%, that is £10 billion a year of tax which is there for the taking.

If the landlords are, as you suggest, dishonest and HMRC have been, as you suggest, incapable, then all the more reason for Treasury wonks to suspect that f**king the buy-to-let [email protected] may be a real money spinner. The public statements from the Treasury about the money Section 24 will raise may in the fullness of time be revealed as deceit. Maybe Gauke and pals were pretty sure it would pull in a great deal more than they suggested. Maybe they were quietly confident that landlords were dishonest and that HMRC had been asleep at the wheel. Maybe they hoped that if they could solve these two problems then they could collect a lot of extra tax.

It's not about whether the landlords are honest, or whether HMRC are capable. It's about the incentives. A broke government is looking for suitable targets. The complete and total failure of the Axe The Tenant Tax campaign to garner any interest (much less any actual sympathy or outrage) must have convinced people in the Treasury if there is "Gold in them thaar hills" then nobody gives a shit if they start taking it.

The numbers above show that there is plenty of reason to go hunting for gold.

Have you ever stopped to consider the possibility that you are the person who is naive? Have you ever considered the possibility that the people who see things differently do so because they know more and have thought more?

* DYOR

Edited by Bland Unsight
Link to comment
Share on other sites

  • Replies 162
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Posted Images

Consider an extreme case. If Fergus really does have £250m worth of housing then even at 4% gross yield that is £10m/year rent from the portfolio. Tax all of that at 45% and that is £4.5m a year flowing into government coffers. £4.5m/year will run a modest-sized secondary school.

The existence of the leverage and the ability of landlords to deduct mortgage interest before assessing income chargeable to income tax are preventing the government from getting a share of the rents.

Maybe those of us who post that Section 24 is a big deal are naive. Maybe not. I'd be interested in somebody showing me where my numbers are wrong. 

Link to comment
Share on other sites

3 hours ago, Bear Hug said:

I agree with many of the above quotes and in particular really like the idea of the above post, but is it actually true?  If rent less allowable expenses was under  £2.5k p.a. (pre-S24, presumably allowable expenses included interest payments) then only contacting HMRC was required, not completion of the tax return.

Just been reading a few threads (google search) on BTLers questioning whether they have to contact HMRC or not (<£2.5K).   I wonder what the penalty for BTLers not making contact with HMRC is (<£2500)?  Some BTLers might have risked not advising HMRC (<£2.5K) for they've been running their BTL EMPIRES at £0 profitz.

Quote

 

She was discussing finances with another doctor, who asked whether she paid tax on her rental income.  She said yes, of course, she couldn't sleep at night otherwise. 

Other doctor's reply was basically, 'Then you're mad.  We never have.' 

 

Could be wrong but for <£2.5K, perhaps HMRC send a simplified 4-page return form?  That's the gist of one article I just read.  You have proven yourself very good with the math @Bear Hug.  What do you believe is the likely position for HMRC vs LLs/BTLers going forward into S24?

I just don't know the overall BTL position with regard HMRC, but many appear to doubt HMRC have the hunger or the information, to follow up the 'few steps ahead' BTLers and their properties, and really play down the impact of S24 on HPC.   My view is HMRC is not anything like as behind as they believe, and S24 changes so much.   I am glad I am not in a position of having any income undeclared.  And LLs have houses they rent out.   So many risks of that being flagged up somewhere, and Connect offering up some serious computation power.   If it is a serious turn against LLing/BTL, as Bland Unsight points out, Gov has spending/debts to sort out.   Good reason to go hunting for monies from the LLs and BTLers.   (Although I also believe doing so gives advantage to other participants... new voters... banks for fresh lending.)   The BTLers/LLs are not all important hardcore 'core-voters' they have tended to cast themselves as.  

 Already reading so many more stories of BTLers coming to market, and that is likely to pick up as S24 begins to bite.  Anything which brings more supply to market, and has BTLers selling up, is good news for me.  Some BTLers may slip the net but overall, S24 makes me happy.

ncnGfaSW.jpg

 

£0.

Big £0.... source/more (lol):  https://www.property118.com/open-letter-george-freeman-mp-conservative/76353/

or some token tax paid by this BTLer illustration:  https://www.property118.com/how-the-budget-will-affect-private-landlords-example/76673/

 

Also, although he is a big time happy HPIer himself, and doubts the ability of the financial system to allow much house price drop at all, I always like to think back to Prescience's view about HMRC/authority.  On taxation (rather than bank solvency) he seemed to know his stuff.    It also comes back to what I mean about HMRC and power.  I have not read many instances where they use such powers, but always good to know they have such powers.

On 2/7/2011 at 11:33 AM, Prescience said:

This case flows from Anti Money Laundering legislation and the Proceeds of Crime Act.

There is a now a thing dividing line between Tax Evasion (Not avoidance, note) being subject to a Civil Penalty and a Criminal Offence.

Same with VAT.

Purposive Tax Evasion (i.e. not genuine mistake or error) of significance (And presently £5k is of significance) means all and any assets gained via Money Laundering automatically qualify as a Crime.

Whilst HMRC could no doubt spend time and investigation, to prove how each property purchased was achieved by undeclared income (Evasion) why bother?

They can (And do) resort to POCA to take the lot, in penalty.

(Because of my professional practice, I am necessarily regulated and compliant to AML and POCA).

 

On 2/8/2011 at 7:29 PM, Prescience said:

Let's set the record straight here............

If a taxpayer is squeaky clean, then they can easily defend themselves by producing records which stack up.

The Revenue's stance on investigation for over 25 years has been assessment and then "Prove us wrong!"

A taxpayer (Let us assume Schedule E: i.e. PAYE) who enjoys another income from property and repeatedly fails to declare this on their tax return is wholly unable to defend themselves: "Didn't know I had to Guv!"

Ignorance of the law is no excuse. Consult a professional.

If and when one commences a new or additional business activity, which falls to tax under Self Assessment (Any case) then one has Six Months to advise HMRC.

Not exactly rocket science is it?

 

On 2/9/2011 at 8:35 AM, Prescience said:

Further comment which I hope is useful.

Remember, the Revenue can always demand you prove how your lifestyle is created and maintained.

If they suspect evasion then they will ask you to prove how you achieved ownership of the mansion, yacht, fleet of high-end supercars; Lear jet etc whilst your declared income was around £ 25K P.A.!

:lol:

At the end of one closing investigation with a client, the senior inspector pushed the normal "Statement of Worldwide Assets" form across the desk. (This is normal at the end of all investigations: and once signed if they later discover you had concealed assets, then you are in serious deep formula Sh1t!).

Anyway, the client (Who has always fancied himself as a bit smart) asked "Excuse me Mr.X, what is a "Worldwide Asset" please?"

At which the inspector looked him straight in the eye and said "Well, for example, if you owned a black Mercedes such and such, that would be an asset."

Whereupon the client gulped rather: 'cos he did, and it was then obvious to him he had been observed and probably followed.

If the Revenue suspect, then they will serve you with a very high assessment: and invite you to prove them wrong.

If you cannot, then they will compute (On their side) the probable cost of living for your lifestyle and acquisition of your assets: and then give you a bill; plus interest plus penalty.

Or charge you under POCA.

 

Link to comment
Share on other sites

From my experience HMRC have everything they need to investigate what they need. They have mortgage interest charged, savings interest earned, dividend details earned, deposit guarantee details. 

They debate is therefore about resource and priorities of HMRC and that is shifting due to C24. Rental income is no longer just about <£2500 profit....it is the impact on that persons personal allowance, benefits and of course the new profit calculation. 

I am not aware of any 'cash' landlords and if there are an army of them out there - then that goes in the basket of criminals. And it's a very high risk strategy. This is not like window cleaning with £10 notes and small amounts (not suggesting window cleaners evade tax of course...just example of low level cash job which is harder for HMRC to 'track').

The 118'ers are saying they pay £50k interest, £100k interest....you cannot 'cash' that away unless it's deliberate money laundering criminal activity.   

For the main this C24 a game changer (money launderers aside). And if you are in any doubt about HMRCs insight then put £25,000 into an ISA next year (ie split with 2 institutions) and see what happens. 

If it's easy then HMRC will track you.....and the data now pouring into HMRC from financial institutions is making this easier. That is one of the reasons why you need your National Insurance number to take out a mortgage.  

Once quarterly tax activity starts this will ramp up further. And I am not saying a taxi driver, window cleaner or landlord won't understate earnings and get away with it. Other crimes will take place too. I am saying a LL not declaring is now in the camp of incredibly high risk because IF the revenue investigate they are in real trouble because everything is so visible. 

Edited by Phil321
Link to comment
Share on other sites

14 hours ago, Bear Hug said:

 

 

I agree with many of the above quotes and in particular really like the idea of the above post, but is it actually true?  If rent less allowable expenses was under  £2.5k p.a. (pre-S24, presumably allowable expenses included interest payments) then only contacting HMRC was required, not completion of the tax return.

https://www.gov.uk/renting-out-a-property/paying-tax

You must contact HMRC if your income from property rental is less than £2,500 a year.

But you must report it on a Self Assessment tax return if it’s:

  • £2,500 to £9,999 after allowable expenses
  • £10,000 or more before allowable expenses

If you don’t usually send a tax return, you need to register by 5 October following the tax year you had rental income.

That was my quote, from a couple of years ago.  Lifted a little out of context, but I think it still stands up to scrutiny.  

I think HMRC have it pretty sewn up.  You are missing 2 things from your gov.uk reference.  

The first is that ALL income above the tax free limit needs to be declared.  The only way to do anything over and above PAYE is through Self Assessment.

The second is that most higher rate tax payers are compelled to fill out a SA tax return anyway.

Thus, once you are committed to filling out a tax return, you need to fill out the section on rental income (SA105?) regardless.  That section has seperate boxes for gross income and expenses.

The only landlords who wont have to declare anything to HMRC are those with a net rental income between £2.5K and £10K (as per your reference) AND also a total personal income LESS than the tax free allowance.  I would argue that the number of landlords fitting this criteria is vanishingly small.  Less than 10% by number of landlords? Less than 5% of properties? Even less of the total rental income within the sector?

My guess is HMRC should be seeing 95%+ of gross national rental income declared.  I can't remember the actual number, but I recall there is something like 60-70% undeclared.  Somebody will remember the real figure, hopefully.

Link to comment
Share on other sites

I would still suspect there are many 'accidental' landlords on standard rate residential mortgages and those with property in the name of others with undeclared rental income that will go under the radar.

I fully accept that BTL mortgage data will be heavily scrutinised and that there will be a lot of BTL landlords caught out.

I would love to be proved wrong however.

Link to comment
Share on other sites

12 minutes ago, sideysid said:

I would still suspect there are many 'accidental' landlords on standard rate residential mortgages and those with property in the name of others with undeclared rental income that will go under the radar.

I fully accept that BTL mortgage data will be heavily scrutinised and that there will be a lot of BTL landlords caught out.

I would love to be proved wrong however.

So-called "accidental"* LLs will still be easily findable via DPS and Land Reg, I'd expect. Wouldn't surprise me if some of the relatively larger tax liabilities lie with this cohort. If they are in work then all their tax allowance might be completely used up there and any extra income could push many into the next band up.

 

* I tripped over a kerb and as I fell I moved out my home, having arranged alternative accommodation, called a letting agent, signed a tenancy agreement with the vetted tenants, got some keys cut and arranged a gas safety certificate, then grazed my knee. Accidental innit.

Edited by The Knimbies who say No
Link to comment
Share on other sites

Of course all of this is ignoring the other side of the treasury coin - benefits.

Now that the rent is income, and with benefits being reduced by 63p for every £ of income received, anyone claiming benefits and owning a btl is stuffed. And I think there are probably quite a lot of them. 

Shame.

Link to comment
Share on other sites

12 minutes ago, CunningPlan said:

Of course all of this is ignoring the other side of the treasury coin - benefits.

Now that the rent is income, and with benefits being reduced by 63p for every £ of income received, anyone claiming benefits and owning a btl is stuffed. And I think there are probably quite a lot of them. 

Shame.

C24 is interesting when viewed in the context of a BTL property where the rent is being paid via housing benefit. The State is sort of demanding it's own rent discount without having to take the political heat of cutting housing benefit levels. Quite smart really. 

Link to comment
Share on other sites

2 hours ago, sideysid said:

I would still suspect there are many 'accidental' landlords on standard rate residential mortgages and those with property in the name of others with undeclared rental income that will go under the radar.

I fully accept that BTL mortgage data will be heavily scrutinised and that there will be a lot of BTL landlords caught out.

I would love to be proved wrong however.

Worth noting again that the Bank of England is revising its data collection from lenders so that mortgages with a consent-to-let are marked up. You could run an exception report to pick out situations where the name and address on the residential mortgage didn't match with something that it should match with (e.g. the person paying the council tax).

No doubt there are people who will be the tricky to catch -  because they don't use a letting agent, because they haven't obtained a consent-to-let, and so on and so on. However, it's a numbers game. You're picking out subsets of subsets and in the end you end up considering such a small number of people that it doesn't matter what happens to them. The important thing is what the median buy-to-let investor looks like. There are over 2 million BTL mortgages in the market. All of those people will be easy to check-up on. Shortly all the consent-to-let mortgages will be easy to check up on.

People who are not paying tax on rental income may be looking backwards and reflecting on having gotten away with it for so long. They may be taking the past as evidence that they will continue to get away with it in the future, but that is an error of reasoning. Things change. There were reasons why they were able to get away with it in the past and reasons why they are much less likely to get away with it in the future.

Link to comment
Share on other sites

7 hours ago, CunningPlan said:

Of course all of this is ignoring the other side of the treasury coin - benefits.

Now that the rent is income, and with benefits being reduced by 63p for every £ of income received, anyone claiming benefits and owning a btl is stuffed. And I think there are probably quite a lot of them. 

Shame.

+1

Section 24 is a monster. A thing of profound beauty. Just imagine being the person who made it happen. 

Link to comment
Share on other sites

I can't see there being that many cash-only landlords currently, simply because society generally use cash less and less. 

When last did you see a landlord type paying in cash at the petrol station?

 

And besides, his range rover sport SE will get it's annual MOT, which I hazard hmrc will have some big data hooks into the dvla database??. If he's doing 10k miles per year in it, and no petrol or maintenance bills show up in his bank statements, not even for wipers at halfords, and his annual income is seven grand a year, it's got to stick out like a sore thumb.

Link to comment
Share on other sites

11 hours ago, long time lurking said:

Compulsory registration for landlords .....HMRC then has a ready made hit list ,it`s here for most of the country :D

This is exactly what I would like to see. Everyone with more than one residential mortgage (off-set against their main) required to register and state its use with proof. Also a compulsory landlords licence.

Joe Bloggs with bad credit that letting agents won't put on their books. He goes for an ad on Gum Tree letting a room in a two bed flat. He's not bothered about the paperwork, and gets given a photocopied lease lifted from somewhere and thats it from the landlord. As long as £500 gets direct debited per month into the landlords account everyones happy.

How many of the above examples are there? In the suburbs around any major city I bet loads.

Yes 2 million registered BTL landlords will most likely be s**tting g a brick (no pun intended). But its the slum landlords that do anything to avoid tax I want to see done over.

Edited by sideysid
.
Link to comment
Share on other sites

3 hours ago, Si1 said:

I can't see there being that many cash-only landlords currently, simply because society generally use cash less and less. 

When last did you see a landlord type paying in cash at the petrol station?

 

And besides, his range rover sport SE will get it's annual MOT, which I hazard hmrc will have some big data hooks into the dvla database??. If he's doing 10k miles per year in it, and no petrol or maintenance bills show up in his bank statements, not even for wipers at halfords, and his annual income is seven grand a year, it's got to stick out like a sore thumb.

True.

If I was paying 700+, Id want a rent book or paper trail.

The numbers are just too big to be done via brown envelopes.

 

Link to comment
Share on other sites

8 hours ago, Bland Unsight said:

+1

Section 24 is a monster. A thing of profound beauty. Just imagine being the person who made it happen. 

Agreed. Once Government begins to pickup on the riches this revenue seam can yield expect to see a veritable gold rush. All those non-dom landlords are the next low hanging fruit. Ah a thing of beauty to behold.

Link to comment
Share on other sites

16 hours ago, sideysid said:

I would still suspect there are many 'accidental' landlords on standard rate residential mortgages and those with property in the name of others with undeclared rental income that will go under the radar.

I fully accept that BTL mortgage data will be heavily scrutinised and that there will be a lot of BTL landlords caught out.

I would love to be proved wrong however.

There are ways now to report properties let out to HMRC. If caught the penalties could be from

Councils for not registering in LL register

Bank for not declaring it as BTL

Taxman for not filing income returns.

 

There are more money to be made out of these idiots than the amount they made from tenants.

Link to comment
Share on other sites

2 hours ago, spyguy said:

True.

If I was paying 700+, Id want a rent book or paper trail.

The numbers are just too big to be done via brown envelopes.

 

Agree most of us are on the same page here. If brown envelops are used then that's a whole different ball game of serious crime. Tenants paying cash each month with no paper trail also likely to be victims or complicit. 

So I am sure someone somewhere does it....but it is miles away from the norm. 

I know someone who let one house (no profit) and did not declare and has now done so...as part of the amnesty (I was unaware but he mentioned it?). So this is going to catch up with them this year and many like them. 

Sure there will be those that fudge the numbers a bit but even they run a constant risk of investigation if those numbers fall out of the norm. 

I am doing my tax return unusually early in April to see how it impacts and looks. I think the 'gross income' for those of us middle/senior management employees who also have BTLs will look frightening large. And if you have 50....well they may need a bigger box. ?

Link to comment
Share on other sites

On 10/03/2017 at 5:01 AM, Venger said:

A reply to another open letter got my schaffensfreude gland working overtime:

Quote

At present, her rental profit is £65,000, and she has no other income. In 2020/21, if all her rent receipts and costs, and therefore her real profit, remain exactly the same, her taxable profit will be deemed by HMRC to be £220,000. Her tax will go up by 256%, from £15,200 to £54,100. This will be 83% of her real profit.

The net income, which she needs for herself and her daughter to live on, will go down by 78% – from £49,800 to £10,900. Could you live on that?

She will not be entitled to any benefits, because of her income will be deemed to be nearly a quarter of a million.

To maintain her after tax income of £49,800 she will have to increase her rents by 33% between now and March 2020. Not that she will be any better off herself from this.

Thanks to this tax, her economically and socially beneficial business of housing poor people has been undermined, and she faces bankruptcy unless she sells up or increases the rent.

This has probably already been dissected but another P118 calamity is the introduction of ATED for landlords with a portfolio of over £500,000. It appears to apply to all residential properties with very few exclusions.

Quote

What you need to pay

The amount you’ll need to pay is worked out using a banding system based on the value of your property.

Chargeable amounts for 1 April 2017 to 31 March 2018

Property value Annual charge
More than £500,000 but not more than £1 million £3,500
More than £1 million but not more than £2 million £7,050
More than £2 million but not more than £5 million £23,550
More than £5 million but not more than £10 million £54,950
More than £10 million but not more than £20 million £110,100
More than £20 million £220,350

Chargeable amounts for 1 April 2016 to 31 March 2017

Property value Annual charge
More than £500,000 but not more than £1 million £3,500
More than £1 million but not more than £2 million £7,000
More than £2 million but not more than £5 million £23,350
More than £5 million but not more than £10 million £54,450
More than £10 million but not more than £20 million £109,050
More than £20 million £218,200

I never realised that P118 was so much fun!

Edited by doahh
Link to comment
Share on other sites

On 10/03/2017 at 0:35 AM, Bland Unsight said:

A bit of context. The recent NIC change is slated to raise about £150m/year* by 2021. Compare the newspaper front page headlines and BBC coverage of the NIC hike to their reaction to Section 24. The newspaper front pages ignored Section 24 and the BBC don't seem to understand it. Their reporting of it is basically non-existent. The NIC change garnered more interest.

Now consider the money on the table. If you include consent-to-let there are probably about £300bn worth of BTL mortgages in the market. If the property is leveraged at about 60% that's assets amounting to £500bn. If those assets generate a 'gross yield' of 5% on average then that is £25bn of rent being paid every year, all of which is income to some individual.

 

If I was Chancellor then Id have my eye on taking 30%-50% of the that £25bln.

10bln would go a long way in plugging the holes in the budget.

 

Link to comment
Share on other sites

2 hours ago, doahh said:

This has probably already been dissected but another P118 calamity is the introduction of ATED for landlords with a portfolio of over £500,000. It appears to apply to all residential properties with very few exclusions.

ATED shouldn't be a problem for landlords. There's an exclusion for properties let out, as long as they're judged to be let out at commercial rates, rather than say having your cousin stay there for free. 

Link to comment
Share on other sites

31 minutes ago, Patient London FTB said:

ATED shouldn't be a problem for landlords. There's an exclusion for properties let out, as long as they're judged to be let out at commercial rates, rather than say having your cousin stay there for free. 

Thanks. It looks like I misunderstood the meaning of commercial, I thought it meant a company renting a premisis to trade from. It sounds like ATED is aimed at foreign investors who don't put a tenent in the property.

Quote

let to a third party on a commercial basis and isn’t, at any time, occupied (or available for occupation) by anyone connected with the owner

 

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.




×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.