BTL tax implications - scenario

BTL tax implications - scenario

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Discussion

wainy

Original Poster:

798 posts

242 months

Tuesday 27th June 2017
quotequote all
I have a question arising from a couple of scenarios some friends are in - so I would be interested in the potential outcomes.

Say I had a BTL property and didnt pay any tax on the earnings for a number of years. Now I come to sell it I feel obliged to inform the tax man I forgot to pay tax during the period (say past 5 years) and I would to pay it now.

What could I expect from the tax man in terms of penalties or other implications? What sort of fines / interest could / would be applied? The annual profit from the BTL was minimal (max £1200) per year. Would it make a difference if the 'profit' was £0?

Thanks


superlightr

12,842 posts

262 months

Tuesday 27th June 2017
quotequote all
First part -
are you a UK landlord or overseas landlord ie Non resident? NRL?


TooMany2cvs

29,008 posts

125 months

Tuesday 27th June 2017
quotequote all
wainy said:
Say I had a BTL property and didnt pay any tax on the earnings for a number of years.
Did you do Self Assessment at all during that time?

wainy said:
The annual profit from the BTL was minimal (max £1200) per year. Would it make a difference if the 'profit' was £0?
Yes, absolutely - because if there was no profit, there was no tax to pay.

wainy

Original Poster:

798 posts

242 months

Tuesday 27th June 2017
quotequote all
TooMany2cvs said:
wainy said:
Say I had a BTL property and didnt pay any tax on the earnings for a number of years.
Did you do Self Assessment at all during that time?

wainy said:
The annual profit from the BTL was minimal (max £1200) per year. Would it make a difference if the 'profit' was £0?
Yes, absolutely - because if there was no profit, there was no tax to pay.
No self assessment at all during that time.
Even if there is no tax would you be liable for a fine for not filing self assessment?

wainy

Original Poster:

798 posts

242 months

Tuesday 27th June 2017
quotequote all
superlightr said:
First part -
are you a UK landlord or overseas landlord ie Non resident? NRL?
UK landlord

TooMany2cvs

29,008 posts

125 months

Tuesday 27th June 2017
quotequote all
wainy said:
TooMany2cvs said:
wainy said:
Say I had a BTL property and didnt pay any tax on the earnings for a number of years.
Did you do Self Assessment at all during that time?

wainy said:
The annual profit from the BTL was minimal (max £1200) per year. Would it make a difference if the 'profit' was £0?
Yes, absolutely - because if there was no profit, there was no tax to pay.
No self assessment at all during that time.
Even if there is no tax would you be liable for a fine for not filing self assessment?
Probably. But at least it could be seen as a genuine error rather than a deliberate lie.

BTW, I really don't suggest "tweaking" the figures to say profit was £0 if it wasn't... You're quite likely to have HMRC looking closely.

wainy

Original Poster:

798 posts

242 months

Tuesday 27th June 2017
quotequote all
Should you expect fine / penalties for late submission of self assessment for the 5 or so years covering the BTL?

dingg

3,974 posts

218 months

Tuesday 27th June 2017
quotequote all
don't pop your head out of the trench IMO

no target is harder to hit than someone waving a big flag

superlightr

12,842 posts

262 months

Tuesday 27th June 2017
quotequote all
dingg said:
don't pop your head out of the trench IMO

no target is harder to hit than someone waving a big flag
I'm certain you would be fined even if "profit" was £0 as you have failed to declare. We have.

As ding said - it may be better not to jump up and down with a big roundel on your head.

cashmax

1,099 posts

239 months

Tuesday 27th June 2017
quotequote all
superlightr said:
I'm certain you would be fined even if "profit" was £0 as you have failed to declare. We have.

As ding said - it may be better not to jump up and down with a big roundel on your head.
Are you sure about that. I thought the fines were based on the amount owing, so if that number is zero, then 100% of it isn't going to hurt. I guess there is exposure for not filling in a self assessment, which with a BTL I think you are obligated to do.

chil84

46 posts

193 months

Tuesday 27th June 2017
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What about Capital gains tax when you sell it.

Might that not highlight your avoidance.

wainy

Original Poster:

798 posts

242 months

Tuesday 27th June 2017
quotequote all
thanks everyone for the feedback - just for avoidance of doubt it is not me biggrin and i dont think they have another property at the moment so not sure if CGT will be an issue. Will see what they do now.

Eric Mc

121,774 posts

264 months

Tuesday 27th June 2017
quotequote all
Right, lets have a few facts.

i) once an individual acquires a source of income which has to be declared under the Self Assessment system, they have 30 days from the date of acquisition of that source to notify HMRC. If you miss that 30 day window, you could be liable to a "Failure to Notify Penalty". In practice, HMRC does not apply this penalty often - but it is there to be used if they want to.

ii) once you DO notify HMRC that Self Assessment tax returns need to be submitted, you have until 31 January after the end of the relevant tax year to submit those returns. If you miss those deadlines there AUTOMATIC and UNAPPEALABLE penalties - EVEN IF NO TAX WAS PAYABLE.
These penalties START at £100 but climb dramatically. I had one client who picked up a penalty for non submission of returns of £1,200.

iii) if there was tax due in respect of each tax year, then the tax should have been paid in full by the 31 January following the end of the relevant tax year. If that tax remains unknown and unpaid, once it is known to HMRC (following submission of the missing tax returns) they will charge interest back to the statutory payment dates. They will also levy a 5% surcharge on amount that weren't paid by the 28 February after the previous 31 January due date. Interest is also charged on this unpaid 5% levy.

iv) do NOT hope that HMRC will somehow miss you out. Even if you manage to avoid submitting any tax returns for the entire period the property was rented out, once the property is sold, it will be subject to Capital Gains Tax, and HMRC will be notified of the sale by the Land Registry. They have a special unit based in Liverpool that monitors such transactions and they will come after you big time if that is how they find out you had a rented property.
Again, I had to deal with an individual who rented out two properties for ten years and never submitted a tax return in all that time. However, they were picked up when the property was disposed of and, not only did they have to pay the Capital Gains Tax, but they also had to pay arrears of tax, interest and related penalties. It cost them (excluding the CGT) around £16,000 - which they had to pay immediately the figure was agreed with HMRC.

It took almost two years of letter writing and bargaining with HMRC and cost them well over £1,000 in Accounting fees.

BoRED S2upid

19,641 posts

239 months

Tuesday 27th June 2017
quotequote all
wainy said:
thanks everyone for the feedback - just for avoidance of doubt it is not me biggrin and i dont think they have another property at the moment so not sure if CGT will be an issue. Will see what they do now.
Is that correct? You don't have a property other than your BTL at the moment so can dodge CGT and the misses tax due on the profit that wasn't a profit as it was some how rented out and made nothing.

This should all be picked up when the CGT is calculated and they are both going to jail. Or maybe just a big headache and fines to pay.

Do let us know how it all pans out.

Eric Mc

121,774 posts

264 months

Tuesday 27th June 2017
quotequote all
Wainy - just because a property is "your only property" does not mean Capital Gains Tax does not apply.

wainy

Original Poster:

798 posts

242 months

Tuesday 27th June 2017
quotequote all
BoRED S2upid said:
Is that correct? You don't have a property other than your BTL at the moment so can dodge CGT and the misses tax due on the profit that wasn't a profit as it was some how rented out and made nothing.

This should all be picked up when the CGT is calculated and they are both going to jail. Or maybe just a big headache and fines to pay.

Do let us know how it all pans out.
It will be interesting, they are in positions where it all needs to be above board ie take the fine and not hide anything as it would have ramifications on work if any 'convictions' so to speak (eg evasion)

uknick

879 posts

183 months

Tuesday 27th June 2017
quotequote all
Funny this thread should come up at this time.

My brother and his ex are selling a BTL they've had for 20 years. During that time they've never declared the BTL to HMRC, although he does say they've always only broke even.

With regard to CGT, apparently his ex is going to say it is her principal residence. (He has been non resident since before 2015). That might be an issue as they sold their family home about 2 years ago, which they had owned for longer than the BTL.

One other complication is for most of the BTL period, they've rented the place to a housing benefit claimant.

Despite my strongest advice to come clean about the lack of rental declarations and pay any CGT due without having HMRC catch them out, they seem determined to evade any tax due.

I see bad things arising.

Edited by uknick on Tuesday 27th June 15:49

Eric Mc

121,774 posts

264 months

Tuesday 27th June 2017
quotequote all
Yep - straight up example of tax fraud I'm afraid.

It will be interesting to see if the Property Unit in Liverpool picks up the disposal.

If they do and the plan is to claim that it was a main residence - HMRC will not take someone's word for that. They will want concrete evidence that it was their main residence and that is genuinely impossible to prove UNLESS it really was your main residence.

If they want to avoid being taken to the cleaners by HMRC, it might be advisable to point them in the direction of this -

https://letproperty.campaign.gov.uk/


FredClogs

14,041 posts

160 months

Tuesday 27th June 2017
quotequote all
"You are what you owe - and by the time that tan has faded you wanna have paid" SLAM!

- Big Chris

My heart goes in my mouth every time I see an HMRC letter on my door step, and I'm clean as a whistle (at least I think I am) I couldn't do it, it's not worth it, you'll spend the rest of your life dreading every post delivery or knock on the door. (I've over dramatised that for effect, but it's true.)

uknick

879 posts

183 months

Tuesday 27th June 2017
quotequote all
I quite agree with you Eric.

I'm currently on the horns of a dilemma as to whether I should let HMRC know what's going on.

Whilst there is no love lost between me and his ex, any action by HMRC will reflect on both of them. And, I'm pretty sure any fines/tax levied on her will be paid for by him (don't ask).

This might seem like cowardice on my part, but I'd rather not have to report them if I don't have to so I'm hoping the HMRC systems will pick up the sale and trigger an investigation.