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  1. #1

    Buy to let tax avoidance

    Hi I don't pay tax on a buy to let house I have had for nearly 15 years. I regret this but am now in a bit of a corner. I cant afford to come clean and pay a penalty.

    Can I sell the house or will selling bring it to the attention of the HMRC?

    I realise that I have done wrong but when I bought the property I was young and ignorant.

  2. #2
    Black and white. Right and wrong. Honesty is always the best policy. There is no grey area; you know what you need to do.

    The thing about Self Assessment, it is just that. If you don't own up to the income and subsequently sell the property and don't own up to that then nothing will happen - unless and until HMRC take an interest and then you're in trouble.

    You say you "can't afford to come clean" (by which I take it that you couldn't pay the back tax on the rental income). If you are prepared to sell the property, then the line I would take in your position (this isn't advice, it's just what I would do personally) is to make full disclosure to HMRC and use the proceeds of sale to settle any income and capital gains tax. You will probably get hit with interest but your (belated) honesty may avoid penalties. Before I took such a step, I would make sure that I had full documentation of income and expenditure (eg interest payments, repairs, management charges, insurance etc) to ensure that I could show minimum taxable income.

    An acquaintance of mine had a partner who, through a quirk in the system (someone else with an identical name and similar dob) hadn't paid income tax for years. I gave similar advice and HMRC were quite sympathetic when he 'came clean'. On the whole, they're happier to tap into new tax streams than frighten people into not owning up at all and staying in 'the dark economy'.

  3. #3
    Assuming the property in question isn't your only property then by selling you will incur Capital Gains Tax on the profit.

    Unless you want to compound the problem and not declare this gain as well then declaring it via self assessment would probably alert HMRC at least to the potential of unpaid taxes.

    In theory you could try and argue it was just a second home but HMRC are not stupid and can easily check the voter register and the like.

    They also have in the last few years deployed a piece of software that was designed by BAE Systems which can analyse data from many sources looking for potential connections between transactions and ownership.

    Give we have systems that can track and engage a Mach 3 object the size of a cricket ball, spotting something dodgy is going to be relatively easy given the right data. The amount of data HMRC have access to is growing all the time - the downside of the online world we now occupy.

    However like most systems they will have had to establish thresholds to trigger further investigation given they've not got infinite resources - and are hence starting at the top of the income league and working their way through the list, Doctors, Dentists, Plumbers, Builders, Buy to Let, Ebay traders etc. It is also not the odd forgotten savings acount with a few bob in it we are talking about.

    Keeping you head down might keep you under the radar for a while longer but I would guess at somepoint they will ask the question. I suspect it will be easier to get them to accept your cost figures if you initiate any action given they might well decide that if the amount seems reasonable to simply accept it and save time if it looks like there is nothing more to find.

  4. #4
    All the newspaper articles I have read about people who have undeclared assets and/or income in offshore tax havens have strongly recommended that those who have not made earlier declarations should do so before being found out, as the HMRC attitude is then a MUCH more lenient one than where concealment has continued until found out.

    Though your situation is not entirely the same as the offshore people, I would certainly expect you to be treated more leniently in your own situation after YOU initiate the disclosure than if HMRC does it by probing.

    The key in any event will be to divulge EVERYTHING up front, with full facts and figures, keep nothing whatsoever back, be humble and apologetic, pay the bill when they invoice you, and thereafter be absolutely squeaky clean in all your tax affairs for the rest of your life.

  5. #5
    If the amount involved is very large then hire an accountant to make your case and minimise the damage. Otherwise I entirely agree about an early, full and frank disclosure. HMRC gets really irritated at having to sift through lies and half-truths.


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