i am worried sick about property tax

hsp_2009

Hi this is the first time i have posted...always lurked! I need some advise as I am really really worried for my daughter and her hubby they have 3 propertys 1 is their own home and then they have 2 buy to let's which they have had since 2004, in a drunken conversation with my son in law lastnight he informed me that he has never paid or declared tax on these propertys!!! and his excuse is that he has not really made any money on them and they are an investment for the future and he seems to think that the tax man wont catch up with him as no one knows anything about them. I am now out of my mind with worry as I dont want to see my daughter go to prison for not paying her tax's, son in law seems to think everything is ok!!!! Now can anyone explain to me what might happen as I dont have the first clue about buy to let property.
ps hope this is in the right place

dunstonh

he seems to think that the tax man wont catch up with him as no one knows anything about them.

He is wrong to think that. HMRC can easily find out about them and does. Usually at point of sale when it gets flagged up on land registry. However, there are other ways they find out too.

I am now out of my mind with worry as I dont want to see my daughter go to prison for not paying her tax's, son in law seems to think everything is ok!!!!

Prison is very unlikely unless they cannot afford to pay the tax and the fine when HMRC do find out and its found it was done on purpose. The fine can be as much as double the tax bill.

The HMRC is having a bit of a field day with inexperienced landlords not paying tax. Its only a matter of time.

If they go to the HMRC and declare it now, they may get away with a tiny penalty. The longer they leave it the higher the penalty will be. Your son in law is being a fool if he thinks he is going to get away with it.

hsp_2009

thank you for your reply, I guessed in my own mind that he was not right and it is only a matter of time before he gets caught ...what a fool he is, I guess I need to have a stern word with him.
Thanks

Debt_Free_Chick

hsp_2009 wrote: »

thank you for your reply, I guessed in my own mind that he was not right and it is only a matter of time before he gets caught ...what a fool he is, I guess I need to have a stern word with him.
Thanks

Just a gentle word of warning .... they only pay tax on any profit they make. The BTLs are taxed like a business. The profit is (roughly) the income (rent) they receive, less the expenses of running the properties.

He may be right - there might be no tax pay to pay, if they're not making a profit.

Money_Grabber13579

Debt_Free_Chick wrote: »

Just a gentle word of warning .... they only pay tax on any profit they make. The BTLs are taxed like a business. The profit is (roughly) the income (rent) they receive, less the expenses of running the properties.

He may be right - there might be no tax pay to pay, if they're not making a profit.

Yes, but this still needs to be declared whether any tax is payable or not. Only certain expenses are allowable against rental income received.

EdInvestor

Mortgage interest can be claimed against rental income along with various other expenses and thus most well organised BTL investors generally manage to avoid making a profit and incurring a tax liability.It sounds like your son in law knows what he is doing.,

dunstonh

If he was doing it right, then why would he boast about the tax man not being able to find out? Surely it would be simpler to say that he doesnt have to worry about tax because of the way its set up?

Bermuda_John

What he needs to do is fill in a tax return. On the return there is a section for Rental Income.

He needs to take ther rental income and then take off interest on the mortgage, any repairs and maintenance and other fees which can be adjusted for to reduce the tax bill.

These are the following:

Use of home as office £3 a week
Motor expenses, a realistic amount travelling to and from the property and ttravelling to any property related business ... 40p a mile

If the house is rented furnished they can deduct 10% of the rentla income as a "wear and tear allownace".

I very much doubt they are not making a profit and any profit would be taxed at their current tax rate. The profit would be split 50/50 if the houses are jointly owned.

For example i would think the profit is around 30% of the total rent received, it isnt a great amount but it is taxed.

fengirl_2

If he is going to come clean and declare this income, he needs to take professional adivce - dont just bung a tax return in. He is open to penalties for late returns as well as interest, but these can be mitigated in certain circumstances. It is better to have an experienced accountant to negotiate with HMRC on his behalf. He should also be prepared to make a payment on account up front to show good faith.

EdInvestor

Bermuda_John wrote: »

For example i would think the profit is around 30% of the total rent received, it isnt a great amount but it is taxed.

What would you base that on?

A typical fairly recent landlord like this one will probably have a 75-85% interest only mortgage at around 6%.All this interest is claimable, as are repairs,redecorating, agents fees and other expenses.Many landlords make a loss because rental yields are low due to the big rise in house prices- the system is arranged to produce this so there is no tax to pay.That is why the Revenue makes little fuss about the issue. They are more interested in the CGT that may be payable on the sale.

Bermuda_John

it was a rough guess and i think you are basing your figures on people who think they are property tycoons and just buy anything to rent out for a negative or marginal cashflow.

in the area i am 650 monthly rental income will cost you 350 a month interest only. maybe 250 in use of office a year, similar amount in repairs. Take of 10% wear and tear.

that gives you around 200 a month profit or 30%.

That is using todays low rates, once the rates go back up the profits will obviosuly be turned into a loss.