Tax Man Query

amjad171

I am posting this on behalf of a friend.

My friend has just received a letter from the Inland Revenue mentioning that he is in reciept of rent without notifying them. He has 2 properties one for 3 years and the other just over a year, both on rent. The mortgage payment for property 1 is £375 and the rent is around £400 and it has been like that for the 3 years, Property 2 is £250 rent and £240 mortgage. One of the questions the Inland revenue has asked him is how he managed to fund the properties when he bought them, i.e where did he get the deposit from, I know for the first property his father paid the deposit for him as he had just graduated from uni and for the 2nd property he remortgaged the first house, will Inland Revenue need to see proof of this?, will they believe that his father helped him with the deposit. To be honest I believe my friend when he says he did not know he had to fill in a tax return form as he is just about breaking even with the rent, if he discloses all this information to the Inland Revenue as they have asked is he likely to get a fine or be commited for a crime, he is very worried. Any help would be greatly appreciated.
Thanks

Pennywise

Re the father's contribution, should be no problem - presumably the father can show where the money came from (i.e. savings bank account etc) and there is a paper-trail between his father's account and your friend's account.

Re the mortgages, I presume your friend has the solicitor's completion statement and mortgage statements which would clearly show how each property was financed.

Re the mortgage payments, remember only the interest is allowable, not any capital repayments - again, the mortgage statements should clearly show this.

Obviously your friend will have to pay the tax he owes. Added to this will be the automatic interest and late payment surcharges. If he is fully co-operative, I would expect little in the way of fines - probably the standard £100 late tax return submission fines which are again automatic.

Personally, if your friend is being fully honest and can produce all the necessary paperwork to the tax inspector, it should all be dealt with quickly. Of course, he doesn't have a choice - if he delays and is unhelpful, the tax inspector will use all his powers and is more likely to charge higher penalties which can be as much as 100% of the tax due in extreme cases of deliberate evasion and unco-operation.

I'd tell him to get out all his paperwork and co-operate fully. He can ask his solicitors and mortgage company for any paperwork he has lost. He may also wish to consult an accountant to make sure that he is claiming all the expenses he is entitled to.

amjad171

The letter he has recieved from the tax man doesnt ask for him to provide any documents, it asks the questions like, property addresses, purchase prices and dates of purchase, deposit paid and how obtained, how much rent and mortgage payment, and names of tenants and how is rent recieved.

Will he not be able to provide all this information on a piece of paper, in a letter or does he need to get the mortgage statments from his mortgage provider and the solicitors completion statement? would it be better for him to provide these aswell? With regards to his rent being paid to him in cash, will this be a problem?

silvercar

He should answer the questions asked, honestly. It sounds like this is a preliminary enquiry, if the revenue are satisfied with what they see it may go no further. From your figures, your friend probably has no tax to pay. He will probably get a reminder that he should declare his rental income, even if he has expenses to match, and that will be the end of it.

amjad171

Thanks for your comments. I will inform him tonight.

theGrinch

there is a sliding scale of penalties and fines based on cooperation. if you cooperate and given the fact he is breaking even he should then I wouldnt worry too much.

amjad171

Well he assures me he is breaking even or at the most making around £20-£30 a month, woulth this be taxed?, would there be an issue about the fact that the rent is paid in cash?