Buy to Let - HMRC

Dalglish

My friend bought a second home as a buy to let investment 5 years ago and tells me she has never made any capital gains, the rental income just about covering the mortgage repayment.
Her accountant has told her she should have been filing annual self assessment tax returns which she has never done and that she should expect penalties as a result.
She wants to know why her lender, Santander, never told her to file tax returns when she borrowed the loan for the rental property. Does she have any reason to be unhappy with Santander for failing to inform her of this?

Finally, her letting agent has informed her the tenant has defaulted on the last 3 months of rent - question, has the letting agent breached its contract with her for failing to inform her of this now that she has incurred unauthorised overdraft charges as a result this default?
Many thanks all.

nidO

Dalglish wrote: »

She wants to know why her lender, Santander, never told her to file tax returns when she borrowed the loan for the rental property. Does she have any reason to be unhappy with Santander for failing to inform her of this?

Santander are her mortgage provider, not her tax advisor - It is her responsibility to ensure she knows her tax liabilities and declares the appropriate income, as she will have been having taxable income for the past 5 years (she can offset the interest portion of her mortgage repayments against rental income and other expenses such as agent's fees but that's it, if she has a repayment mortgage and her rental income totals the same as her mortgage cost she will effectively be due to pay tax on the portion of her repayments that's paying down her capital).

Dalglish wrote: »

Finally, her letting agent has informed her the tenant has defaulted on the last 3 months of rent - question, has the letting agent breached its contract with her for failing to inform her of this now that she has incurred unauthorised overdraft charges as a result this default?
Many thanks all.

This will entirely depend on the terms of the contract with the letting agent, it is a pretty terrible service from the agent if they haven't bothered mentioning to her for 3 months that the tenant hasn't been paying the rent (but it's also pretty irresponsible of her not to have noticed for 3 months that she's received no rental income), assuming the agent is providing a full rent collection/management service they should have been chasing up the rent pretty much the day it was overdue, and informing her of the problem.

Thrugelmir

Dalglish wrote: »

She wants to know why her lender, Santander, never told her to file tax returns when she borrowed the loan for the rental property. Does she have any reason to be unhappy with Santander for failing to inform her of this?

She should be extremely unhappy with herself for not seeking professional advice when starting to run a business. As now she has a considerable liability heading her way. HMRC have a saying. Ignorance is no excuse.

Dave_Ham

Not entirely sure you friend should be allowed 1 mortgage, let alone 2.

There are not many variables to manage on a property that has a managing letting agent, but tax and rent must be the 2 most significant.

I would love to blame Santander, although they hold no responsibility for this.

As stated, only interest payments can be offset to mitigate tax.

Listerbelle

Dave_Ham wrote: »

As stated, only interest payments can be offset to mitigate tax.

For clarity to the OP:

Of the amount paid for the mortgage, the interest component is tax deductible along with any other mortgage-related financial fee such as annual buy-to-let fee.

Of course there are many other legitimate deductions. I suspect that the OP's friend was hoping to positively gear the property and finds herself surprised to be negatively geared. Or, as Dav Ham might agree, the friend may not be aware of this phrase if she is unaware of her tax implications.

OP. The situation is salvageable. Your friend just needs to focus on the correct objectives and actions to make this happen.

silvercar

Dalglish wrote: »

My friend bought a second home as a buy to let investment 5 years ago and tells me she has never made any capital gains, the rental income just about covering the mortgage repayment.

She won't realise any capital gains untils she sells the property.

Her accountant has told her she should have been filing annual self assessment tax returns which she has never done and that she should expect penalties as a result.

How long has she had this accountant and why didn't he advise her earlier to file returns and why isn't he sorting it out now?

She wants to know why her lender, Santander, never told her to file tax returns when she borrowed the loan for the rental property. Does she have any reason to be unhappy with Santander for failing to inform her of this?

Did her lender also advise her to have a gas safety certificate done annually? This really isn't the lenders problem.

Finally, her letting agent has informed her the tenant has defaulted on the last 3 months of rent - question, has the letting agent breached its contract with her for failing to inform her of this now that she has incurred unauthorised overdraft charges as a result this default?
Many thanks all.

It is for her to check her own bank accounts, but the letting agent must have some responsibility for not alerting her to non payment.

Thrugelmir

Listerbelle wrote: »

OP. The situation is salvageable. Your friend just needs to focus on the correct objectives and actions to make this happen.

Failure to file annual self assessment forms in itself incurs sizable penalties. Even if the actual tax liability is small.

antrobus

Thrugelmir wrote: »

Failure to file annual self assessment forms in itself incurs sizable penalties. Even if the actual tax liability is small.

Depends. Particularly it depends on whether the taxpayer concerned is caught by HMRC or voluntarily fesses up. I know of one particular taxpayer who recently contacted HMRC having failed to file 4 years worth of SA on a BTL. No penalty at all to be applied.

mrginge

Generally speaking, in order to run a business (and hope to make some profit) one has to actually take some responsibilities for it's running.
It would appear your friend has forgotten this important fact.

g_attrill

antrobus wrote: »

Depends. Particularly it depends on whether the taxpayer concerned is caught by HMRC or voluntarily fesses up. I know of one particular taxpayer who recently contacted HMRC having failed to file 4 years worth of SA on a BTL. No penalty at all to be applied.

I was just about to reply saying that HMRC can be quite reasonable sometimes, if you approach them in the correct way. I'm sure it would be best if an accountant draws up all the details in advance and submits it in one pack with an explanation/apology (I'm sure they know the best methods), rather than saying "oops we think we need to pay tax, can you tell us how to?".

Dalglish

Dear all thank you very much for this valuable insight. There are some hard learning a here for my friend to take on board. I guess ignorance of the tax situation is never excusable but I do think making a humble approach to hmrc may be advisable a suggested.
Best wishes