HMRC Warns Buy-to-Let Landlords

HM Revenue and Customs are concerned that many buy to let landlords are not paying enough tax. It is estimated that up to 80,000 have overstated their deductions for tax purposes by including the capital element of mortgage repayments (not allowable) as well as the interest on the sum borrowed (allowable). The key point here is that if the mortgage on your buy to let property is of the repayment type (which may not be the most tax-efficient way to finance it!), make sure the sum you claim on your tax return as a deduction for interest paid does not include the capital repayment.

The taxation of rental income is complex, with a variety of different rules applying depending on circumstances. The rules relating to the treatment of losses also vary depending on the type of rents you receive. For example, there are different rules for all of the following types of residential letting:

• rent a room receipts for rooms let in one’s own house; 
• furnished holiday lettings; 
• furnished lettings; and 
• unfurnished lettings.

It is also worth mentioning that the responsibility for asking for a tax return if you have taxable income and do not receive one lies with the taxpayer. If you are not sent a tax return and have taxable income not subject to PAYE, you should request one or face a possible penalty.

Also, there is usually considerable scope for tax planning to mitigate the effect of Capital Gains Tax on the disposal of let properties.