Landlords Beware: HMRC Cracks Down on Tax Avoidance
Crunch time is approaching for scores of buy-to-let investors who followed advice from property gurus promising magic solutions to saving fortunes in tax.
Some landlords have reportedly paid six-figure sums to enrol on tax avoidance schemes, only to find HM Revenue & Customs is ruling the schemes break tax laws.
The property owners who took part could face a total tax bill of more than £100 million, says HMRC.
And that staggering amount could easily double when fines, penalties and other costs are added to the tab.
The landlords are now waiting to see if HMRC is targeting them by sending a ‘nudge’ letter asking if they paid the correct amount of tax when transferring individually owned properties into limited company ownership.
HMRC urges landlords who may be involved in a tax avoidance scheme to get in touch and suspects more than a thousand are involved.
The campaign centres on capital gains declarations for the 2017-18 tax year but is expected to roll on to later tax years in 2024.
Failing to cooperate with the HMRC inquiry within 30 days could result in a full-blown tax investigation.
What is tax avoidance?
HMRC says tax avoidance is bending the rules to gain an unintended tax advantage.
A hint that a scheme could be tax avoidance is if contrived and meaningless transactions are involved merely to manufacture a financial advantage. Often, a tax avoidance scheme appears to follow the letter of the law rather than the spirit of the wording that Parliament intended.
What are the tax avoidance warning signs?
Many tax avoidance schemes follow a similar template:
- The promoters wrap the scheme in wording that makes the process seem secret and exclusive. The same tax rules apply to everyone and are freely available to anyone who takes the time to learn the legislation and guidance.
- The scheme aims to reduce tax liabilities.
- Access to the scheme is only available for a fee, which is often more than the tax due to HMRC.
- The promise is too good to be true, for instance, cutting the tax liability of a landlord by up to 100 per cent when transferring property from individual to corporate ownership.
- The promoters make a point of boasting about their tax qualifications to add authority to their pitch.
- The scheme is labelled as HMRC, being aware of the scheme and having approved the process.
- The scheme is a market leader with tried and tested arrangements that are missed by current tax law.
How do I check if a tax avoidance scheme works?
One good rule of thumb is to ask an independent property tax adviser, accountant or lawyer if the scheme works. The odds are if they do not follow the scheme, then it is unlikely to be bona fide.
Will HMRC tell me if a tax avoidance scheme works?
The standard HMRC response to such a request is to file the details with a tax return, and a tax inspector will consider the case's merits. Of course, by that time, a landlord has already joined the scheme and possibly broken tax rules.
What does HMRC say about tax avoidance?
HMRC says sophisticated data analysis is used to identify tax avoidance and warn potential victims of the consequences of joining a scheme.
“Each of us is personally responsible for paying the right tax under UK law; anyone who enters into an avoidance scheme is taking a big risk. That’s why we warn taxpayers to avoid avoidance schemes, which seldom achieve the tax advantages claimed,” says an HMRC notice.
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