BTL Mortgage + Undeclared HMRC Income
Discussion
Something that I've come across recently in addition to some chatter on a few broker forums recently which may act as a forewarning to people on here.....
A broker was contacted by an applicant for a BTL remortgage, all stacked up.....broker asked for copies of the tenancy agreements and bank statements to evidence the receipt of the rent, as normal.
Lender requested HMRC documentation, which was not normal.
HMRC document showed zero for profit from land and property.
Broker ask applicant about it, applicant coughs that they don't declare the income to HMRC.
Lender declines application.
Seems lenders are aligning with HMRC on this.........
A broker was contacted by an applicant for a BTL remortgage, all stacked up.....broker asked for copies of the tenancy agreements and bank statements to evidence the receipt of the rent, as normal.
Lender requested HMRC documentation, which was not normal.
HMRC document showed zero for profit from land and property.
Broker ask applicant about it, applicant coughs that they don't declare the income to HMRC.
Lender declines application.
Seems lenders are aligning with HMRC on this.........
It's not new, it happened to Mrs C the last time we remortgaged one of the BTLs, which would have been about 3 years ago.
IIRC it was the broker who asked us for it and, because it was the first time we'd used a broker for a mortgage (and because this was after the stricter tests for mortgages) we assumed it was normal. I assumed that it was the broker who actually wanted to make sure we were legit and above board rather than the Bank.
IIRC it was the broker who asked us for it and, because it was the first time we'd used a broker for a mortgage (and because this was after the stricter tests for mortgages) we assumed it was normal. I assumed that it was the broker who actually wanted to make sure we were legit and above board rather than the Bank.
schmunk said:
I attended an HMRC webinar today about their API strategy (yawn!) which mentioned that they are working with financial institutions to implement all sorts of stuff like this.
I'm surprised they haven't already - it would be like shooting fish in a barrel.E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
Countdown said:
I'm surprised they haven't already - it would be like shooting fish in a barrel.
E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
They already do this..............E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
Sarnie said:
Seems lenders are aligning with HMRC on this.........
Sounds like the Corporate Criminal Offence is focusing their minds at the lender. Tax evasion was always on the wrong side of POCA and AML but the Criminal Finances Act 2017 has removed any doubt whatsoever about failure to prevent the facilitation of tax evasion, which includes lending to a landlord who doesn't declare their rental income.Prolex-UK said:
Countdown said:
I'm surprised they haven't already - it would be like shooting fish in a barrel.
E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
They already do this..............E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
They can also:
- cross-reference to local authority landlord registration databases
- identify individuals with multiple properties though Land Registry sales and purchase data
- require letting agents to complete statutory returns with details of rents collected on behalf of landlords
- cross-reference to Stamp Duty Land Tax returns
As for why they haven't previously:
Historically there was little incentive to do so. Rental income was mostly offset by mortgage interest so there was limited tax to go after. That's changing with the incoming restrictions on mortgage interest relief. Not only will these changes limit relief but tax bands will also be determined by reference to income before interest so a lot of basic rate landlords may find themselves subject to tax at the higher or additional rate. There's also Capital Gains Tax when landlords sell off their now loss-making properties.
They've also been pushing the Let Property Campaign to encourage self-disclosure of undeclared income.
In light of this, I've checked our last 30 BTL applications.
Only one required HMRC documentation.
The majority of the rest required only bank statements and/or tenancy agreements.
Eight applications where we had the above on file as required as mandatory documents, no documents were requested whatsoever at all............
The government have had it in for the amateur landlord for a while now, this seems like another swipe at them.......rightly of course.....the net is tightening.
Only one required HMRC documentation.
The majority of the rest required only bank statements and/or tenancy agreements.
Eight applications where we had the above on file as required as mandatory documents, no documents were requested whatsoever at all............
The government have had it in for the amateur landlord for a while now, this seems like another swipe at them.......rightly of course.....the net is tightening.
ninja-lewis said:
Sarnie said:
Seems lenders are aligning with HMRC on this.........
Sounds like the Corporate Criminal Offence is focusing their minds at the lender. Tax evasion was always on the wrong side of POCA and AML but the Criminal Finances Act 2017 has removed any doubt whatsoever about failure to prevent the facilitation of tax evasion, which includes lending to a landlord who doesn't declare their rental income.Prolex-UK said:
Countdown said:
I'm surprised they haven't already - it would be like shooting fish in a barrel.
E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
They already do this..............E.g. One thing they could do is check which landlords are getting direct payments for council tenants and then cross-reference that with declared income on SA100 forms.
They can also:
- cross-reference to local authority landlord registration databases
- identify individuals with multiple properties though Land Registry sales and purchase data
- require letting agents to complete statutory returns with details of rents collected on behalf of landlords
- cross-reference to Stamp Duty Land Tax returns
As for why they haven't previously:
Historically there was little incentive to do so. Rental income was mostly offset by mortgage interest so there was limited tax to go after. That's changing with the incoming restrictions on mortgage interest relief. Not only will these changes limit relief but tax bands will also be determined by reference to income before interest so a lot of basic rate landlords may find themselves subject to tax at the higher or additional rate. There's also Capital Gains Tax when landlords sell off their now loss-making properties.
They've also been pushing the Let Property Campaign to encourage self-disclosure of undeclared income.
Sarnie said:
Something that I've come across recently in addition to some chatter on a few broker forums recently which may act as a forewarning to people on here.....
A broker was contacted by an applicant for a BTL remortgage, all stacked up.....broker asked for copies of the tenancy agreements and bank statements to evidence the receipt of the rent, as normal.
Lender requested HMRC documentation, which was not normal.
HMRC document showed zero for profit from land and property.
Broker ask applicant about it, applicant coughs that they don't declare the income to HMRC.
Lender declines application.
Seems lenders are aligning with HMRC on this.........
Lending in general is heading more and more to using ‘taxes paid’ as the best metric as to the client’s solvency and creditworthiness. A broker was contacted by an applicant for a BTL remortgage, all stacked up.....broker asked for copies of the tenancy agreements and bank statements to evidence the receipt of the rent, as normal.
Lender requested HMRC documentation, which was not normal.
HMRC document showed zero for profit from land and property.
Broker ask applicant about it, applicant coughs that they don't declare the income to HMRC.
Lender declines application.
Seems lenders are aligning with HMRC on this.........
The reality is that the amount someone pays in tax is a really, really good indicator as to how solid they are to lend to.
The BTL market is absolutely riddled with tax evasion and if you’re a lender you don’t want to be at the back of the queue behind HMRC or placed in a queue by them.
I’m sure that the large number of tax efficient, self employed and contractors on PH will be aghast at this but the uncomfortable truth when lending to a punter is the amount of tax they willingly lob at HMRC is a brilliant metric and hardly surprising that it has filtered down to the BTL market and will probably find its way into general property lending as lenders focus more and more on default risk as money supply tightens back up over the coming years.
Sarnie said:
The flaw seems to be that they are requesting SA302's to evidence this......but that only shows the profit from L&P........so are they now saying that landlords need to be making a profit to lend money to them?
Is that a bad thing? Profit is ultimately excess revenue in some regards. If we are heading into an era of higher debt costs then you want to lend to those with higher cash flows and more stability. Home owners fight much harder to stop a repo than any BTL investor. BTL got massively out of hand and became a very serious systemic risk to the housing market. The taxation changes have brilliantly targeted the speculators and got rid of them or forced them to deleverage and turned it back towards being an investor’s market where the margin deposits are big enough that in the event of a decline in property valuations we aren’t going to have hundreds of thousands of BTL speculators defaulting and collapsing the market for no good reason.
Alongside all of this, the last twenty years has seen personal taxation fall dramatically as more and more investors and workers have moved their taxation both legally and illegally outsside of the remit of the HMRC, whether that be Isle of Man contractor schemes, image rights, offshore companies, trusts etc etc. Linking being able to borrow to taxes paid is safer for lenders as in a default you can’t chase assets beyond borders in a normal environment.
And frankly, from a moral perspective, shouldn’t it be easier and more favourable for tax payers when it comes to borrowing versus those who have opted for aggressive avoidance or full evasion? Not forgetting the moral aspect of de commoditising the residential property market and recognising that homes are for home owners rather than for speculation and ramping?
DonkeyApple said:
Lending in general is heading more and more to using ‘taxes paid’ as the best metric as to the client’s solvency and creditworthiness.
The reality is that the amount someone pays in tax is a really, really good indicator as to how solid they are to lend to.
The BTL market is absolutely riddled with tax evasion and if you’re a lender you don’t want to be at the back of the queue behind HMRC or placed in a queue by them.
I’m sure that the large number of tax efficient, self employed and contractors on PH will be aghast at this but the uncomfortable truth when lending to a punter is the amount of tax they willingly lob at HMRC is a brilliant metric and hardly surprising that it has filtered down to the BTL market and will probably find its way into general property lending as lenders focus more and more on default risk as money supply tightens back up over the coming years.
A lender with a charge over the borrower's asset is WAY more secure than HMRC. Since 2003, HMRC has no priorities over any normal non-secured creditors .The reality is that the amount someone pays in tax is a really, really good indicator as to how solid they are to lend to.
The BTL market is absolutely riddled with tax evasion and if you’re a lender you don’t want to be at the back of the queue behind HMRC or placed in a queue by them.
I’m sure that the large number of tax efficient, self employed and contractors on PH will be aghast at this but the uncomfortable truth when lending to a punter is the amount of tax they willingly lob at HMRC is a brilliant metric and hardly surprising that it has filtered down to the BTL market and will probably find its way into general property lending as lenders focus more and more on default risk as money supply tightens back up over the coming years.
Eric Mc said:
A lender with a charge over the borrower's asset is WAY more secure than HMRC. Since 2003, HMRC has no priorities over any normal non-secured creditors .
Eric, you don’t want to be lending to people likely to get a touch from the taxman. Simple as that. You probably know as well as I do that extracting monies from such people tends to be infinitely less possible than from conventional borrowers. You will also recall that liquidating a client’s property assets due to rising debt costs traditionally leaves an outstanding debit balance and you you simply don’t want competition when chasing money.
DonkeyApple said:
Eric, you don’t want to be lending to people likely to get a touch from the taxman. Simple as that. You probably know as well as I do that extracting monies from such people tends to be infinitely less possible than from conventional borrowers.
You will also recall that liquidating a client’s property assets due to rising debt costs traditionally leaves an outstanding debit balance and you you simply don’t want competition when chasing money.
It's not stopped lenders in the past. They didn't care.You will also recall that liquidating a client’s property assets due to rising debt costs traditionally leaves an outstanding debit balance and you you simply don’t want competition when chasing money.
HMRC have no additional rights to money they are owed over ordinary creditors.
Eric Mc said:
It's not stopped lenders in the past. They didn't care.
HMRC have no additional rights to money they are owed over ordinary creditors.
Collection isn’t usually required in a rising market though. It’s more a function of a falling or soft market or one where the deposits are not large enough. And creditors are creditors. You don’t want to be one of many chasing a client and nor do you want to be chasing highly ‘tax efficient’ clients for obvious reasons. HMRC have no additional rights to money they are owed over ordinary creditors.
The lending market is different today to any time post the deregulation of 1997. Lenders are focussing much more on the default side. Hence why it’s no longer just the specialist lenders who are referencing tax returns for the purpose of suitability. As seen in the examples above, it is coming to vanilla lending probably with a bias to non PAYE as you’d expect.
Sarnie said:
The flaw seems to be that they are requesting SA302's to evidence this......but that only shows the profit from L&P........so are they now saying that landlords need to be making a profit to lend money to them?
Are SA302 a thing of the past? Unless you can print them from hmrc yourself they won't send them, most mortgage companies accept a tax computation from accountants filing software and that clearly lists all the property details, including rent received and cost. The tax overviews they asked for I could print and send.That's what I've been asked for for the last three btl applications.
Edited by Casa1862 on Saturday 7th April 23:37
Casa1862 said:
Are SA302 a thing of past? Unless you can print them from hmrc yourself they won't send them, most mortgage companies accept a tax computation from accountants filing software and that clearly lists all the property details, including rent received and cost.
That's what I've been asked for for the last three btl applications.
Semantics.That's what I've been asked for for the last three btl applications.
The SA302 is on the way out, being replaced by the tax computation which shows exactly the same information as the SA302.......I've not seen a tax computation yet that detailed rent received or cost......that's not the purpose of the document.
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