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New Powers Come Into Force Next April

As part of a drive to track down tax evaders, up to one million landlords could be subject to investigation from HM Revenue & Customs (HMRC) who aim to identify those landlords who are not paying the correct amount of tax.

HMRC say that in their experience many buy-to-let investors are incorrectly assuming that they can offset the full cost of a repayment mortgage against their profits for tax purposes, and in general misunderstand what general expenses they are allowed to set of against their rental income.

So, from April 2009 HMRC will have new powers to turn up at the office or home of private landlords and demand to see their records. Landlords should not only keep their records up to date but need also to maintain separate bank accounts etc for the letting business and their private business. If they don’t then the taxman will have the right to trawl through their personal records which otherwise they would normally have no right to do.

Whilst it is likely that only the most serious cases will warrant a knock on the door from the taxman, this change signals HMRC’s intent to pursue persistent tax evaders. HMRC routinely obtain information from local government authorities, the Stamp Office and letting agents about rental income and the sale of properties. This information will be “data matched” to identify individuals who have not made the appropriate tax returns or even advised HMRC that they are letting out property.

There are many “accidental landlords” these days as people often have to move jobs and being unable or unwilling to sell their home, let it out. Many of them will fall foul of the tax laws and possibly do not know that have to file a tax return.

There are currently more than one million buy-to-let mortgages, compared to just 120,000 in 2000.

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