600 Expat Landlords Caught For Cheating Buy To Let Tax

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Hundreds of expat landlords have admitted they cheated tax in recent years, according to the British taxman.

HM Revenue & Customs says around 600 British expats have confessed understating or failing to declare rental income from buy to let investments in the past two years.

The landlords only admitted tax avoidance after receiving warning letters giving them 90 days to sort out their tax affairs or face fines and an investigation as part of HMRC’s ongoing Let Property Campaign.

Many were worried because they owed large amounts of tax stretching back several years, or their finances were negatively impacted during the coronavirus pandemic.

Nevertheless, the 2020 total of 248 landlords is a 36 per cent reduction from the previous year.

HMRC says most of the rogue landlords are UK expats.

How HMRC traps tax cheating landlords

Philip Kinzett-Evans, a partner at UHY Hacker in Newbury, said: “It’s likely some landlords have been underpaying tax, either accidentally or deliberately, in the hope HMRC would overlook them.”

“Landlords must ensure that they correctly account for all income and pay HMRC precisely what it is owed. If they fail to do so, the repercussions could be severe.”

“The best way to ensure that landlords are paying the right amount of tax is for them to seek expert advice and inform HMRC of any uncertainties they might have. This would minimise the risk of a severe financial penalty, or even a jail sentence.”

He went on to explain how HMRC tracks down overseas landlords letting homes in the UK.

Besides data sharing with foreign banks to view statements, the taxman also collects information from tenant deposit protection schemes, council tax payments and letting agents for cross-reference against self-assessment returns.

Why landlords pay the wrong tax

Kinzett-Evans also highlighted the reasons why many landlords do not pay the right amount of tax, which include:

  • Reducing tax bills too much by wrongly deducting mortgage costs
  • Joint owners mistakenly allocate more income than they should to the lowest rate taxpayer
  • Claiming business spending in error that should be excluded from the accounts

UHY Hacker advises any landlord receiving a warning letter from HMRC should contact a tax professional.

The letter asks landlords to check their tax returns to confirm they are paying the right amount of tax.

Buy to let tax black spots mapped

Another UHY Hacker partner has ranked the buy to let tax avoidance hot spots in a separate HMRC freedom of information inquiry.

Neela Chauhan has put together rogue landlord data from the HMRC and published a top 10 table:

RankPlaceLandlords admitting tax avoidancePopulationCases per 100,000 population
1Ilford48335,69414.3
2Slough47373,60712.6
3Dartford52430,56012.1
4Luton39335,95011.6
5Enfield39344,43411.3
6Harrow53480,95311.0
7Paisley35321,69110.9
8St Alban’s26250,42710.4
9Reading78778,67710.0
10Edinburgh82868,9389.4

Source: UHY Hacker

Eight of the ten towns and cities lie in London’s commuter belt, with the East End town of Ilford topping the list. The remaining two places went to Paisley, near Glasgow, and Edinburgh.

Chauhan said: “HMRC sees rich pickings in the buy-to-let market in terms of the unpaid tax. The amounts collected from landlords who have voluntarily come forward suggest they may be right in their assessment.

“Landlords leave themselves vulnerable to prosecution and even a prison sentence if they fail to declare the correct amount of rental income or pay CGT on the sale of buy-to-let properties.

“Given the consequences of laying low, proactively admitting a possible error to HMRC is unquestionably the prudent course of action.”

Expats generally pay tax on UK rental income. However, HMRC allows them to retain the personal allowance and pay tax on rents earned above that level. Expats in a country that has a double taxation agreement with Britain can claim tax relief in the UK to avoid paying tax twice on the same income.

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