Do Btl Landlords You Know Dodge Tax?

[smiley]

This issue arose out of a different debate elsewhere on this forum. There seem to be wildly different views on it (or, perhaps to put that more accurately, everbody seems to disagree with me!).

All the BTL people I know don't pay income tax. They recieve rent money and turn it straight into mortgage payments. Furthermore, they don't seem to think they OUGHT to pay income tax on it - the mortgage they perceive as a cost. This is illegal - they should pay tax on their rent, even if it means the rent then falls below the cost of the mortgage.

The point is, is this happening? Is this sort of fraud widespread, or is it just me that thinks it is?

Do you have any revealing anecdotes on this? Does Rosie Millard pay tax?

[frugalista]

This issue arose out of a different debate elsewhere on this forum. There seem to be wildly different views on it (or, perhaps to put that more accurately, everbody seems to disagree with me!).

All the BTL people I know don't pay income tax. They recieve rent money and turn it straight into mortgage payments. Furthermore, they don't seem to think they OUGHT to pay income tax on it - the mortgage they perceive as a cost. This is illegal - they should pay tax on their rent, even if it means the rent then falls below the cost of the mortgage.

The point is, is this happening? Is this sort of fraud widespread, or is it just me that thinks it is?

Do you have any revealing anecdotes on this? Does Rosie Millard pay tax?

To clarify, BTLers must pay income tax on their profits, i.e. the difference between the revenues and the costs of their BTL business. The rental income is the revenue obviously. Amongst the costs are the interest parts of mortgage repayments and also fairly generous allowances for maintenance and depreciation.

This could still mean that a BTL business is making a loss of course (in which case no tax is due). Note that BTL losses cannot be set against other income.

I think the problem is that many BTLers just do not see themselves as running a business. They problably mostly just have 9-5 PAYE jobs and have little experience submitting returns etc. Plus, the Inland Revenue just don't seem to be making any effort to chase this tax, which has led to an impression amongst many amateurs that no tax is due.

I would guess that Ms Millard is paying tax. To be so publicly involved in BTL and to not do so would be risky to say the least. But I bet some of her BTLer mates aren't.

frugalista

[Given Up]

If it's a furnished place the BTL can deduct 10% of rental for wear and tear. Can also deduct repairs and agents fees and mileage costs for visiting the property and phone calls and anything related to the costs of running the place.

[enworb]

frugalista & Given Up are spot on. Landlords that let out fully furnished properties are entitled to 10% of the rental income absolutely tax free. I dare say a lot of LL's don't bother with tax returns because they make less or not much more than the 10% allowance.

If the tax man comes knocking on their doors within 6 years of them renting, they will demand to see 6 years worth of contracts,mortgage statements and bank statements.If they don't have any records i'm not sure if he will assume the figures at current market value or fine the LL?

It probably is a risk worth taking , but having said that, i'm going to declare my income because I am within my 10% allowance.

LL's with large portfolios will need to have plenty of cash in the bank if they don't declare , just in case he comes knocking. Otherwise they will have to find the money another way,ie sell part or all of their portfolios.

I think there's more of a problem with illegal immigrants renting HMO properties.LL's definately aren't declaring this for obvious reasons

[frugalista]

If it's a furnished place the BTL can deduct 10% of rental for wear and tear. Can also deduct repairs and agents fees and mileage costs for visiting the property and phone calls and anything related to the costs of running the place.

Is that why it's hard to find an unfurnished property?

frugalista

[whiterabbit]

This issue arose out of a different debate elsewhere on this forum. There seem to be wildly different views on it (or, perhaps to put that more accurately, everbody seems to disagree with me!).

All the BTL people I know don't pay income tax. They recieve rent money and turn it straight into mortgage payments. Furthermore, they don't seem to think they OUGHT to pay income tax on it - the mortgage they perceive as a cost. This is illegal - they should pay tax on their rent, even if it means the rent then falls below the cost of the mortgage.

The point is, is this happening? Is this sort of fraud widespread, or is it just me that thinks it is?

Do you have any revealing anecdotes on this? Does Rosie Millard pay tax?

I know 3 seperate people in my area who own houses/flats outright and rent for cash and don't declare anything, this also includes fixing up houses on the side to sell. Down at the pub they call it a "volentary tax" and say if they get caught so what then they will pay. I think this is very widespread. Aslo the expats in my office all try and rent through the work intranet site to another employee for cash so they dont have to pay tax.

From what I understand if you won outright it is very difficult to get caught!

[frugalista]

I know 3 seperate people in my area who own houses/flats outright and rent for cash and don't declare anything, this also includes fixing up houses on the side to sell. Down at the pub they call it a "volentary tax" and say if they get caught so what then they will pay. I think this is very widespread. Aslo the expats in my office all try and rent through the work intranet site to another employee for cash so they dont have to pay tax.

From what I understand if you own outright it is very difficult to get caught!

That might be the case today. But I don't think it will be this way for long. The Housing Act 2004 already requires certain landlords (HMO) to be licensed, so there is a paper trail for their rented properties which could be used by the Inland Revenue.

In October of this year the tenant's deposit scheme comes into effect. This is part of the Housing Act 2004. Under this scheme, landlords will be forced to put tenants' deposits in special accounts so that they cannot steal the tenants' money. There will therefore be an incontravertible paper trail for every property which is let. And of course the land registry already ties each property to an owner.

I think the Inland Revenue may then start actively chasing BTLers for income tax.

frugalista

[laurejon]

The interest on the loan is tax deductable, and like any business creative accounting can be excercised to ensure you do not pay tax. Nothing illegal here, its common business practice in all sectors.

The trick in the UK is move out of being a high tax paying wage slave, and into the lucrative, direct your own future tax free domain, setup for the Labour Parties fee paying supporters.

[rockdoctor]

This is why landlords prefer to buy their BTL properties with on an IO mortgage, with minimum deposit; they want to maximise the cost side of the equation, so as to minimise the profit for tax purposes.

This requires that they save money into some form of repayment vehicle if they ultimately want to OWN the BTL property - but I'm sure that all LLs do this?

[WSG]

If you believe someone is not paying tax then you have a duty to report it to HM Revenue and Customs - it takes less time to report them than it does to make one posting on this forum. Remember it costs you more because they are not paying their share.

click here to submit an online report - it will be investigated.

[Time to raise the rents.]

This issue arose out of a different debate elsewhere on this forum. There seem to be wildly different views on it (or, perhaps to put that more accurately, everbody seems to disagree with me!).

All the BTL people I know don't pay income tax. They recieve rent money and turn it straight into mortgage payments. Furthermore, they don't seem to think they OUGHT to pay income tax on it - the mortgage they perceive as a cost. This is illegal - they should pay tax on their rent, even if it means the rent then falls below the cost of the mortgage.

The point is, is this happening? Is this sort of fraud widespread, or is it just me that thinks it is?

Do you have any revealing anecdotes on this? Does Rosie Millard pay tax?

You are just an opionionated idiot to suggest that it is illegal to offset mortgage interest against rent.

Go away little person & do some research before you spread your gossip.

[laurejon]

Ok thanks for those links

Sainsburys

Tesco's

Virgin Airlines

Vauxhall

Cadburys

Maybe you could put them in for me.

The point being, they all use offshore vehicles to dodge taxes that we the workers have to pay through PAYE Pay as you Yelp.

Edited May 18, 2006 by laurejon

[WSG]

Ok thanks for those links

Sainsburys

Tesco's

Virgin Airlines

Vauxhall

Cadburys

Maybe you could put them in for me.

The point being, they all use offshore vehicles to dodge taxes that we the workers have to pay through PAYE Pay as you Yelp.

As any accountant will tell you there is a fundamental difference between "Tax evasion" and "Tax avoidance"

[frugalista]

You are just an opionionated idiot to suggest that it is illegal to offset mortgage interest against rent.

Go away little person & do some research before you spread your gossip.

Whoa there tiger, that's a bit strong!

The original poster suggested it's illegal to treat mortgage as a cost, which is partly true if it is a repayment mortgage. But, as I immediately clarified, it is not illegal in the case of the interest portion.

In these days of low nominal interest rates, the interest part is typically just over half the repayment at the beginning of the mortage and then goes down, while the rent (as you are so fond of pointing out) is gradually going up. So, there's typically plenty of room in the BTL game for tax fraud.

frugalista

[CrashIsUnderWay]

Hey, TTRTR,

that is an interesting link to the taxevasion hotline.

Can I have your real name and address please (on a totally related subject)

:-) :-) :-)

[smiley]

You are just an opionionated idiot to suggest that it is illegal to offset mortgage interest against rent.

Go away little person & do some research before you spread your gossip.

Sniff - I feel hurt now!

The point is not so much mortgages but rental income: this IS income, but frequently not declared as such. It's often ignored in yield calculations, and mortgage payments, not just mortgage interest, are being deducted.

Gossip? Fact, in at least more than one case I know.

Besides, isn't gossip of this nature one of the purposes of this forum?

[dogbox]

Common place for LLs to take cash.

I know some who rent to separated / divorced Men. Those Men earn cash and pay cash as they dont want the CSA taking a dip. Those not earning cash use 'Cash Converters' et al to access thier 'hidden' income (you did'nt really think the sudden rise and rise of cheque cashing shops was all down to Pawning did you?).

Also many earning cash and not declaring so as to avoid Tax will always seek out LLs wanting cash rent.

Its endless really.

[WSG]

Hey, TTRTR,

that is an interesting link to the taxevasion hotline.

Can I have your real name and address please (on a totally related subject)

:-) :-) :-)

I believe that an IP address will be sufficent in many cases

[laurejon]

As any accountant will tell you there is a fundamental difference between "Tax evasion" and "Tax avoidance"

Of course, Tax Avoidance is a vehicle that has been setup to allow members of parliament and their cronies who subscribe to the cause to creatively bypass the taxation setup for the drones of society of whom they look to for their Champagne Lifestyle, whereas the rules sorrounding Evasion are setup specifically to capture the laymen working to put shoes on his childrens feet, and food on the table.

Classic is the Self Assesment forms, made complicated to trip up the layman who cannot afford the services of an offshore tax consultant, but simple for the likes of Tonies Cronies who have made sure there are exits within the act for them to escape paying their dues.

Lets all be honest here, high earners in the corporate world do not fall into the same tax burdens as the workers, they are far too clever for that old chestnut.

[Guest Bart of Darkness]

I believe that an IP address will be sufficent in many cases

Sorted!

[WSG]

Of course, Tax Avoidance is a vehicle that has been setup to allow members of parliament and their cronies who subscribe to the cause to creatively bypass the taxation setup for the drones of society of whom they look to for their Champagne Lifestyle, whereas the rules sorrounding Evasion are setup specifically to capture the laymen working to put shoes on his childrens feet, and food on the table.

Classic is the Self Assesment forms, made complicated to trip up the layman who cannot afford the services of an offshore tax consultant, but simple for the likes of Tonies Cronies who have made sure there are exits within the act for them to escape paying their dues.

Lets all be honest here, high earners in the corporate world do not fall into the same tax burdens as the workers, they are far too clever for that old chestnut.

The morality of it is not the point - the legality of it is.

Evasion = illegal - Avoidance = legal

[Time to raise the rents.]

They'll send soldiers to take over Iraq on a hint of possible weapons of some sort

But do you see them off to Guernsey or the Isle of Man where possibly billions are being stolen from the UK taxpayer who is forced to pay higher tax rates because of evasion occuring under their noses?

And you lot are worried about one landlord who probably makes next to nothing from their property!

Grow up.

[Guest Winners and Losers]

And you lot are worried about one landlord who probably makes next to nothing from their property!

There is something very wrong about that sentence.

[Flat Bear]

If you believe someone is not paying tax then you have a duty to report it to HM Revenue and Customs - it takes less time to report them than it does to make one posting on this forum. Remember it costs you more because they are not paying their share.

click here to submit an online report - it will be investigated.

May be we all have a duty to shout abuse at the the likes of you. Accountants like you are the biggest tax dodgers out. What business of yours is it that I use my computer 21% in my own time or that someone uses their employers computer to post during lunchbreaks. These Nulab big brother posts are sick, you should be paying for all the stupid nulab ideas yourself ive already paid a life times in a couple of years and dont believe in anything they spend my taxes on. IT IS MY DUTY TO KEEP MY MONEY

[laurejon]

I agree with TTRTR, the real fraud is being executed legally on a grand scale. Yet the Government would send out the entire police force to catch a road tax dodger, or a simple misplaced entry on the VAT return.

This country is losing billions in fraud perpetrated not by petty individuals but by the captains of the ships in which we all sail as innoccent and unwitting passengers.