Owners of rental properties advised to regularise their affairs before new tax crackdown in 2010

New rules for landlords, including buy-to-let property investors, will force letting agents to hand over the names and addresses of all past and present landlords on their books. It is part of a crackdown by HM Revenue and Customs to identify those who make money from rental properties who have not been paying the correct tax.

It is estimated that thousands of landlords in the UK will not have paid the right amount of tax and it includes people with second homes abroad who rent them out.

‘Many people with second homes do not realise that they ought to be declaring income from property abroad if they are resident in the UK,’ said a spokesman.

Under the new rules which come into force in 2010 HM Revenue and Customs expects to recover £200 million in unpaid tax.

But some lettings agents have voiced concern about being forced to hand over names and addresses. They feel that being asked for all names and addressed of landlords they have been in contact with, including those on an introduction only basis is, draconian. ‘I feel it is a bit over the top to be asked to give details of every single person who has ever enquired about our services. I know others who feel the same. It will also add to our workload for no extra gain,’ said one agent who did not wish to be named.

But a leading tax lawyer said that any opposition would be futile.  Ian Hyde, a tax partner at international law firm Pinsent Masons, said that although the new rules being drawn up by HMRC to identify landlords not paying the correct tax would create an added burden of red tape for the letting business, this was not a concern for the Revenue whose aim was to ensure landlords should pay tax on income.

He explained that under the current law HMRC has the power to ask for information where the letting agent collects funds from rental properties on behalf of a landlord. It cannot do so where the agent has introduced a tenant to the landlord for a fee and the rent is then paid directly to the landlord. But that will change in 2010.

‘HMRC is now more aggressive in collecting tax and more inventive in using its powers to do so. Where, as in this case, it doesn’t quite have the right powers it is getting them and the Government is happy to help,’ Hyde said.

‘One aspect of this initiative is concerned with taxpayers who choose not to pay tax. It’s difficult for HMRC to identify who these people are and the easiest way of doing it is to force known intermediaries to give up lists of clients. Here it is the agents,’ he added.

Hyde pointed out that a similar crackdown a few years ago was focussed on the banks when they were forced to give up details of those with offshore bank accounts.

He advises and landlords that think they may not have paid the right amount of tax to do so as soon as possible as effectively by warning of their intentions HMRC is giving those who have knowingly underpaid a chance to rectify the situation and put their house in order before the new rules are applied next year.

‘The rules won’t come in until 2010. Under the new penalty regime introduced in April this year, there is a very good incentive to disclose any untaxed income before the Inspector calls,’ he said. Will some investors be put off investing in rental properties after this move?

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