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One million landlords dodge tax by not declaring rental income

HMRC figures: one in three buy-to-let landlords evades tax costing UK £550m a year

By Steve Lodge | 14 March 2013

“This has long been known as an area where people do not declare income” – Richard Murphy, co-founder, Tax Justice Network

One million buy-to-let and other private landlords in the UK are evading tax by failing to declare rental income, according to figures obtained by Exaro.

The estimate was disclosed by HM Revenue & Customs (HMRC) and highlights widespread tax evasion among private landlords.

By comparison, 1.9 million people declared rental income for tax in 2010-11, the latest figures available. It means that around one in three landlords is failing to declare such income.

An HMRC insider told Exaro: “It is clear that there is widespread abuse.”

HMRC believes that many of those not declaring rental earnings are small-scale “amateur landlords”, who let out property to supplement their main income or as a retirement nest-egg, or “accidental landlords”, who are unable or unwilling to sell a property.

But an HMRC spokesman said that even the estimate of one million was likely to understate the true number of landlords dodging tax because it only represents people who do not file annual tax returns.

He added that the figure would be even higher if it covered people who file returns under the self-assessment scheme.

Officials think that the amounts of tax being dodged are, in most cases, a few hundred pounds, averaging about £500 a year. However, as Exaro revealed in November, HMRC estimates that the total evasion of tax due on rental income costs the public purse at least £550 million a year, around a quarter of the amount that should be paid.

He added: “This is a significant issue. The £550 million is money that we should have.”

John Whiting, director of tax policy at the Chartered Institute of Taxation, said: “Plenty of people do not own up to this income. It is a combination of not realising they should declare it, wishful thinking, and a bit of, ‘The taxman will never catch up with me.’”

HMRC, said the spokesman, accepted that those failing to disclose rental income “are not all conniving to cheat the system.” But, it believes, most people know that they are supposed to declare these untaxed earnings.

He continued: “The law says that the onus is on the individual to declare.”

Landlords who do not file self-assessment returns are meant to declare rental income by October 5 following the tax year in which it is received.

Those later caught with undeclared income face penalties ranging up to 100 per cent of the amount owed, as well as having to pay the tax plus interest.

Richard Murphy, an accountant and co-founder of the campaign group, Tax Justice Network, said that HMRC had been “extraordinarily lax” in tackling non-payment by landlords.

“HMRC should get a grip,” he said. “This has long been known as an area where people do not declare income. If they are not asked, they do not declare it.”

In November, HMRC told Exaro that landlords who fail to declare rental income were “ripe” for a crackdown. It said that this would likely mean a “tax amnesty” in 2013, offering reduced penalties for people who came forward to settle unpaid liabilities.

HMRC this month launched a campaign aimed at owners of multiple residential properties. But this is focused on capital-gains tax on profits from the sale of properties.

According to HMRC’s spokesman, it could yet launch a campaign this year aimed at what it admits is the “bigger risk” of undeclared rental income.

HMRC also gathers information on landlords from letting agents, deposit-protection schemes and property websites to target individuals directly.

“We need to do more,” admitted the HMRC spokesman. Given the scale of non-declaration, HMRC was “thinking very hard” how to tackle the problem, he said. “It may be that more people need to go into self-assessment.”

Exaro also revealed in September that buy-to-let landlords are legitimately able to save more than £2 billion a year in tax by offsetting mortgage interest against rental income.

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By Exaro News

Exaro News investigates matters of public interest and seeks to uncover the truth.