Retrospective income tax liability relating to property income

Discussion in 'Property Tax and Accounting' started by Habib123, May 1, 2018.

  1. Habib123

    Habib123 New Member


    ok so I'm new to property investing and am wanting my own tax affairs up straight and up to date. I've owned a leasehold property since July 2007 and during that time I let out the property for 58 months whilst living in it for the rest of the time. going through my accounts it has become apparent that I may have a retrospective tax liability in relation to the period I let out the property.

    I've got self assessment tax calculation forms from HMRC for the six tax years concerned and have found I did declare rental profit in one tax year. I've asked HMRC to send through self assessment tax calculations for all tax years since 2004 so I can see exactly where I stand. according to their website they have 40 days in which to respond.

    for tax purposes, am I right in assuming Profit from land/property for self assessment is worked out by deducted the annual mortgage interest accrued from the annual rental income in each tax year ? Since 2007 I've gone through three different lenders so if this is the case I will be requesting certificate of mortgage interest for the tax years concerned from each lender. I was under the impression profit was worked out by deducting the total mortgage payments and service charges for the year from the annual rental income-I guess this is incorrect ?
  2. FWL

    FWL Member

    The government recently changed the rules on deduction of mortgage interest charges but I cant imagine this was retrospective. There will be deductable costs which you can offset against rental income which must surely include things such as servicing the property, advertising for tenants, goods bought, etc.
  3. realdeals

    realdeals Active Member

  4. diyhelp

    diyhelp Active Member

    Did HMRC contact you about this potential tax liability or did you find it yourself? I am intrigued as the authorities are using ever more complex ways to check and track our tax payments/liabilities.
  5. Habib123

    Habib123 New Member

    well I was going through my accounts and as I am missing my tax returns for three out of the six tax years concerned , it crossed my mind that there may POTENTIALLY be a liability . I could be wrong. I have since acquired statements from the account I used to manage payments during this time period and will apply HMRC rules to work out if anything is due or due back to me.

    You are probably aware of HMRC's 20 year time limit to claim back retrospective taxes if they have reason to believe a taxpayer has not paid their fair share. However I am a basic rate taxpayer living in a leasehold flat so, whilst that fact alone does not make me immune from those folks at HMRC raising an inquiry, I would hope HMRC are concentrating their time and efforts at those at the top end - surely it is those that are worth investigating ?
  6. Longterminvestor

    Longterminvestor Administrator

    I think a lot of the HMRC investigations are automatic now. For example, if you have a company and there is lets say a big change in your income, tax or even different areas of expenditure this may be flagged automatically. It is far easier for HMRC to join the dots now and open investigations - across all walks of life.
  7. Habib123

    Habib123 New Member

    Ok so I've gone through all of my tax returns that I have and worked out how much profit I made from renting out the property in the tax years concerned. Out of the six, I've paid tax on 1 tax year, the other tax year I lived in the property from the start of the financial year until January. I just have to pay tax on the profit accrued from jan 10- apr 10.

    So there are only 4 tax years concerned where I've made a collective profit of £3577.10 . Tax on that @20% +3% interest = £736.88.

    In addition they have overstated my taxable income in tax years from 2014-15 by included an annual profit of £1091 and classed it as 'other income'. I have had no income other than that from my work since the 2013-14 tax year. collectively I've overpaid tax since the 2014-15 tax year by £829.09. I'm thinking once I get my tax returns for the missing years to declare this to HMRC and net the two off leaving the actual refund due to me of £92.21. I will get my 2017-18 annual tax summary in October of this year but I suspect that will also include the fictional income in its calculation.

    N.B I am working out the profit I made in the tax years I rented out the property by the following formula;

    total annual rental income - (mortgage payments + service charges ). is this correct or should I just be deducting the mortgage interest accrued in the tax years to date ?

  8. nmb

    nmb Well-Known Member

    I would take advice from an accountant because I am not sure if they will charge interest on past missed payments or charge some kind of penalty. They should nt but I think you need to take advice. Also, when submitting the revised tax returns you need to be 100% certain they are correct and cover everything as if they go digging and find more issues then you might be in trouble.
  9. Habib123

    Habib123 New Member

    well I can't submit a revised tax return for the four tax years concerned until I get copies so that I can see what figures were included.

    In any case I have revised my calculations, working out profit using the following formula

    total rental income -mortgage interest( figs to be confirmed)- service charge- 10% wear and tear allowance.

    it turns out there is a tax liability due but this is reduced by me being overtaxed in the years I've lived at the property.

    Anyway I will speak to an accountant and wait to see if HMRC will send me my revised tax returns.

  10. diyhelp

    diyhelp Active Member

    I would be interested to hear how you get on and the attitude of HMRC when they find out you have been over taxed in previous years. I would never want to second guess what the tax office would do!

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