Tax warning for buy-to-let investors, by Tony McDonough

HM Revenue & Customs are contacting up to 1m buy-to-let landlords who it suspects may not be paying the correct amount of tax on their investments.

Under the new initiative, tax inspectors will review details obtained from various sources, including letting agents and the Land Registry Office, in order to uncover landlords who have not fully disclosed rental income or capital gains arising on the sale of investment properties. From April, tax inspectors will have new powers that will give them the right to inspect business records at the place of business.

These same powers will apply to landlords.

As most buy-to-let businesses are run from home, this will allow the inspector access to the landlord’s personal residence, although the inspection will be restricted to the parts of the home used in the business. HM Revenue would normally give at least seven days notice prior to the visit, but, in exceptional cases, no notice would be given.

Thus, we would strongly recommend that all landlords maintain separate business and private records and bank accounts to avoid inspectors gaining access to personal records which they have no right to see.

Despite the recent downturn, there are now more than a million buy-to-let mortgages in the UK, compared with only 120,000 back in 2000.

The huge rise in popularity of this type of investment over the last ten years has prompted concerns that many landlords do not fully understand the complex tax rules surrounding their investments, leading many to innocently under-declare their profits.

Any landlord realising they have made an error should seek professional advice as soon as possible before the taxman knocks on their door.

If further taxes are due, voluntary disclosure may reduce the amount of penalties charged as part of any settlement.

news link: http://www.ldpbusiness.co.uk/commercial-property-liverpool/commercial-property-news/2008/11/19/tax-warning-for-buy-to-let-investors-96026-22290688/