Landlords who transferred their rental properties in a company in 2017/18 are being targeted by HMRC in the latest campaign to ensure all tax liabilities are correctly reported, says tax and advisory firm Blick Rothenberg.
Heather Powell, partner and head of property and construction at Blick Rothenberg, said: “Landlords who incorporated their property business but have not reported a capital gain on their 2017/18 self-assessment tax return are being sent a ‘nudge’ letter.
“Incorporating a property business is an integral element of many of the schemes marketed to landlords significantly impacted by the restriction of interest when calculating the income tax payable on rents received from properties held personally.”
The nudge letters ask the taxpayer to check they have correctly calculated the tax relief available to them, gives references to specific HMRC guidance on technical areas and reliefs available, and gives the taxpayer 30 days to reply.
If the taxpayer does not reply, the next step may be a tax enquiry, and the issuing of a discovery assessment by HMRC.
Blick Rothenberg claims that the nudge letters currently being issued are not as emphatic in stating that UK taxes are payable but give a very good indication that HMRC believe BTL landlords may be under declaring taxes due, and that they have them “in their sights”.
It also advises that any landlord who receives a nudge letter should reach out to their tax advisors immediately.
The firm recommends that those who have transferred their properties since 2017/18 to a company should take steps to review the ensure that they have correctly reported any capital gain that was realised on the transfer, as it expects that they will be the next recipients of an ‘HMRC nudge letter’.
HMRC took the step of issuing a warning in October about a scheme involving a hybrid business model (a partnership and a company) that in their view the scheme does not work, and that any landlords who had used the scheme were advised to withdraw from the scheme and settle their tax affairs.
