Tuesday, February 26, 2008

HMRC enquire into rental income

We know where you don't live - HMRC enquire into rental income.

HMRC is just starting – initially in a small way – to write to people who own UK property they do not appear to live in and are not declaring rental income. The opening letter is very mild in tone, but a non-response will escalate it into something rather more severe (and in the long run a challenge).

There is no obligation to reply to the initial letter but it would be stupid not to do so, especially since there will be many cases where there is no net profit because of mortgage interest.

Under the new penalty regime there may be substantial differences in what you have to pay, depending how early you respond – if there is taxable income which has not been declared and you play hard to get, your penalty is going to be higher and possibly much higher.

This is the shape of things to come, because HMRC is holding an enormous amount of data about property (not just UK property), bank accounts and so on, and is increasing the amount of data it exchanges with overseas tax authorities.

It is worth thinking, too, about the pressure Germany is currently putting on Lichtenstein as an example of what may happen to the European tax havens.

Campaigns like this one on rental property will become a major weapon in HMRC’s armoury. People who have not declared income from non-UK property and UK bank accounts would be well advised to go to the taxman before he comes to them.

You have been warned!

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