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How Landlords Are Affected By 2015 Pre-Election Budget

How Landlords Are Affected By 2015 Pre-Election Budget

How Landlords Are Affected By 2015 Pre-Election Budget

During the pre-election budget last week, Chancellor of the Exchequer, George Osborne MP announced some significant changes that could have a detrimental impact on landlords the UK’s private rental sector (PRS) and residential property owners.

Below are the highlights of the pre-election budget that are of relevance to landlords and property owners:

  • £13 Billion (GBP) sale announced of the mortgages of UKAR – Northern Rock and Bradford and Bingley (Mortgage Express) to reduce national debt which followed the bailing out of the banks.
  • Introduction of 20 new housing zones.
  • The economy of the North grew faster than the South during 2014.
  • The UK has the highest rate of employment in its history!
    Employment is growing fastest in the North West, Yorkshire having the biggest employment.
  • Living standards are higher in 2015 than 2010.
  • Inflation forecast downgraded to 0.2%.
  • Low interest rates to be “locked in”.
  • Original target of debt reduction set in 2010 budget has been met.
  • 13 years of rising national debt has now been stopped.
  • UK achieved the largest and most sustained debt reduction of any major economy according to the IMF.
  • Government borrowing is falling.
  • The wealthy are making the biggest contributions to reduce debt.
  • End of austerity in 2019.
  • The annual tax return is to be abolished. New digital tax accounts to be created.
  • The personal tax free allowance has been raised to £10,600 (GBP) and will be raised to £11,000 (GBP) in 2017.
  • The higher rate tax threshold will rise to £43,300 (GBP) by 2018.
  • Class 2 national insurance contributions abolished for self-employed.
  • Stronger measures against tax avoidance and tax evasion.
  • Review of avoidance of inheritance tax through deeds of variation.
  • New penalties for tax evasion and those professionals who assist them.
  • Crime down 20%.

There was some good news contained in the 2015 pre-election budget too:

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HMRC Targeting PRS Landlords Again

HMRC Targeting PRS Landlords Again

Another Clampdown On UK PRS Landlords By HMRC

HMRC has turned its attention to the housing and property rental market with the intention of targeting landlords, again.

The taxman thinks that there are a number of UK private rented sector (PRS) landlords who have yet to declare any income earned from renting properties to tenants, and they are going all out to find them.

The latest clampdown on private rented sector landlords by HMRC is intended to target those landlords allegedly not paying tax and the taxman is using information provided by all UK local authorities to track rental properties.

Letting agents and landlords have already started receiving letters from HMRC requesting information on long-term and holiday rental property addresses, letting periods, tenant numbers and rental income.

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Landlords Face Closer Scrutiny From HMRC

Landlords Face Closer Scrutiny From HMRC

HMRC Want Landlords
To Pay Up

Her Majesties Revenue and Customs (HMRC) are determined to hit private rental sector (PRS) landlords for as much tax as possible.

Over the past few months, HMRC inspectors have been closely scrutinising PRS landlord activity, focusing on any money generated by sales of buy-to-let properties that were purchased by property investors.

HMRC have created dedicated task forces in the Yorkshire and Humber region and in the South East of England to ensure property investors are not evading tax obligations.

HMRC have also been publicising a property sales campaign to try and round up property investors who have yet to declare income from the sale of rental properties, so if you are a property investor who has recently sold a rental property, (that has never been your main residence), you better hurry up and declare it to HMRC before 6th September 2013.

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HMRC Target Tax Dodging LandlordsHer Majesties Revenue and Customs (HMRC) estimate that more than 30% of UK private rental sector landlords are evading paying any tax on their rental income at a cost of £550 Million (GBP) to British taxpayers.

HMRC reckon that approximately 1 million PRS landlords failed to declare any revenue from their UK rental properties in the past tax year, compared with 1.9 million PRS landlords who paid over 1.8 Billion (GBP) in tax on their rental incomes over the same time frame.

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Buy to let landlords who own rental properties in the North East, Yorkshire, East Anglia and London, should be aware that they will be among businesses targeted by six new HM Revenue & Customs (HMRC) taskforces.

The Association of Residential Letting Agents (ARLA) report that HMRC are likely to focus on private rented sector (PRS) landlords providing temporary accommodation and landlords of Houses of Multiple Occupation (HMO’s) although specific details on the scope of the taskforce have yet to be announced.

It is expected that the taskforce will initially focus on private sector landlords in specific areas, but if the taskforces are successful, their remit could be easily extended to cover the whole of the UK.

In 2011/12, HMRC launched 12 taskforces with up to 30 more set to follow in 2012/13.

The taskforces are a result of the Government’s £917m spending review investment to tackle tax evasion, avoidance and fraud which aims to raise an additional £7bn each year by 2014/15

HMRC are using specialist teams and sophisticated techniques to gather information from across Government departments, and other sources including press and internet advertisements, universities and colleges, to identify individuals who are not paying sufficient tax and the chances of going undetected are increasingly remote.

It is not just unpaid income tax that HMRC are investigating, landlords providing temporary accommodation, perhaps to seasonal agricultural labourers, students or even homeless people, may find that a sizeable VAT liability is incurred.

Some landlords may not realise that VAT is chargeable on temporary accommodation as HMRC tend to treat it in the same way as hotel or guest house accommodation.

Landlords may not be registered for VAT when they should be and so could face a back-dated VAT claim.

The HMRC taskforces undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK.

Exchequer Secretary, David Gauke, said: “HMRC is on target to collect more than £50 Million (GBP) as a result of the taskforces launched in 2011/12. We have made it clear that we will not tolerate tax evasion. Everyone needs to pay the taxes they owe in full. We are determined to crack down on the minority who choose to break the rules. It is not fair that at a time when most hard-working people are paying the right tax, others are trying to get out of paying what they should.”

HMRC’s Director of General Enforcement and Compliance, Mike Eland, said: “These six new taskforces will bring together specialists from across HMRC to tackle tax dodgers. If you have paid all your taxes you have nothing to worry about. But deliberately evading tax you should be paying can land you with not only a heavy fine but possibly a criminal prosecution as well”.

Her Majesties Revenue & Customs is set to mount a court challenge to determine the legality, or otherwise, of stamp duty tax avoidance schemes.

Central to the challenge will be the use of limited companies to buy properties, and then sell them to individuals – something which does appear to be completely legal.

Essentially, the purchaser sets up a Special Purpose Vehicle, a company or a trust with a property as its sole asset. The purchaser then buys shares in the company and is subjected to a tax rate of just 0.5%.

There are many companies offering stamp duty tax avoidance: a Google search yielded over 3,200 results.

The taxman’s move follows this year’s Budget when Chancellor George Osborne announced that he would be clamping down on stamp duty avoidance, whilst law firms have also warned that HMRC is on the prowl.

HMRC estimates the tax avoidance schemes have cost it millions in lost revenue. It is investigating 1,200 people it suspects of having underpaid stamp duty by a collective total of £35m, whilst it will also go after others who have avoided the tax altogether.

The many schemes that claim to legally exploit stamp duty loopholes frequently charge fees of around half the amount that would have been paid in tax.

It is thought that a number of property investors have set up a limited liability company to buy the property to sell back to the individual.

An HMRC spokesperson said: “The schemes rely on an interpretation of law that produces an outcome different from that envisaged when the law was enacted, and that HMRC does not accept.”

Many Law firms have also warned against avoidance schemes of Stamp Duty Land Tax (SDLT).

Ian Montgomery, a solicitor at Boodle Hatfield, said: “There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case. It is a common misconception that it is possible to purchase a property using a company and avoid stamp duty. When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property. This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property. If the company is based offshore, the purchase of shares is exempt from stamp duty entirely.

People who try to reduce stamp duty by paying separately for fixtures and fittings may have to prove to the taxman that what they paid for these assets did not exceed their true value

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