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Where Taxpayers and Advisers Meet

Tax Arrears on a let property

Bellano1
Posts:2
Joined:Sun Apr 11, 2021 1:52 pm
Tax Arrears on a let property

Postby Bellano1 » Sun Apr 11, 2021 2:45 pm

Good Afternoon,

May I request some advice,

Background

I bought a property after a divorce in September 2005, lived in the property until May 2009, then letting it out through a letting agent until present day ,

I got deployed with the military, then when I returned I moved in with my partner and just carried on the let

I used the profit to pay the mortgage , unwittingly did not even enter my mind that I was supposed to pay tax on it until earlier this week, when I started to look into selling the let property.

I owe approx £11,000 in taxe arrears after working out the figures, completely mortified that I could be so stupid, never entered my mind about tax.
I have since on realising that I owe tax, done the following.

First contacted HMRC
Then registered with the Let Property Campaign
Appointed an accountant to go through all my finances, including all the letting agents statements, my P60s for every year, mortgage statements and anything else that may be requested either by my accountant or the HMRC.

I m worried sick about the following.
Criminal charges
The penalties and interest
Debt collection/ recovery.
How will I be able to fund the tax debt owed to the crown I do have savings that would cover most of the debt, but not the interest/ penalties etc

I feel completely stupid and my personal integrity is in pieces.

I really do want to right a wrong

Any advice would be most grateful on how I can get myself out of this mess, that is my own doing.

Thank you in advance

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Tax Arrears on a let property

Postby Lambs » Sun Apr 11, 2021 3:31 pm

B,

I should not be worried about criminal charges. While it is impossible to say that criminal charges cannot be brought, the Let Property Campaign is a civil rather than a criminal matter. The fact that you have approached HMRC when you have realised your misunderstanding strongly indicates innocent error rather than wilful and deliberate evasion.

You are trying to sell the property, so you may well have the funds to pay the outstanding tax in relatively short order. If you do not have ready access to funds (or surplus income) to pay through a usual Time To Pay arrangement, then HMRC will typically agree to wait until the property is sold (although interest will typically continue to accumulate until the liability is settled in full).

Penalties MAY and interest almost certainly WILL be charged. However, if you have approached HMRC "unprompted", and make full disclosure of all the relevant amounts, etc., then the penalty should be quite modest - in this regard, your accountant should assist you in deciding the correct rate through the Let Property Campaign facility. Interest will likely have accumulated over several years, but the rate has typically been around 3% per annum, which is relatively low.

If you have been deployed overseas then, depending on the circumstances, your UK income MAY be quite small during those periods, and there MAY be some tax-free Personal Allowance left over to set against your UK rental income. Make sure that your accountant is sufficiently switched on / fully in the picture, as regards your history, to ensure that your UK residence status, etc., is correctly tracked for significant periods overseas.

One final point: when you sell your property, then it will be subject to CGT because it has NOT been your only or main residence throughout your period of ownership. You may get some relief from CGT for periods when it was, or counted, as your main residence. Here again, overseas deployment may assist to 'cover' periods when you were not physically residing there (and even potentially when it was being let at the same time).

The government has quite sneakily changed the rules on disposals of UK property so that, since April 2020, you are obliged to notify HMRC AND PAY CGT on account, within 30 days of completion of sale - i.e., it is no longer simply a matter of including it in your next tax return, as has been the case for decades prior. I fear even some accountants are unaware of the rule change, so don't let yourself get caught out.

With regards,

Lambs

Bellano1
Posts:2
Joined:Sun Apr 11, 2021 1:52 pm

Re: Tax Arrears on a let property

Postby Bellano1 » Sun Apr 11, 2021 4:04 pm

Lambs,

Thank you for your time and advice,

At I ask another couple of questions?

I moved address in 2016, I did notify my employer of the change of address but obviously not the HMRC, as I was not aware at that point of the issue of my taxes , could they of possibly sent out notification to my previous address of tax arrears, but I would not of received , is this likely or am I just over thinking ?

The other question my partners name ( now my wife) was on the statements from the letting agent, but she has never been part of the mortgage for the let property or received any income from the let, the bank account and mortgage is in my name ONLY.

The reason for my wife’s name being on the statement was purely for any correspondence whilst I was away.

Many thanks

Lambs
Posts:1611
Joined:Wed Aug 06, 2008 3:15 pm

Re: Tax Arrears on a let property

Postby Lambs » Sun Apr 11, 2021 7:21 pm

B,

HMRC would have sent out notice of tax arrears only if it knew you had further tax to pay. If you are thinking of this solely in the context of your rental income, then it seems unlikely that HMRC would have contacted you back then if it was unaware of this source prior to your having notified them quite recently (from the sound of things). There might have been other reasons why HMRC wanted to contact you at that time, of course - perhaps a perceived underpayment from another source?

With regard to change of address, if you notified your employer, then your employer should have notified HMRC under PAYE RTI - Real Time Information - see listed under "Employee information" at: -

https://www.gov.uk/guidance/what-payroll-information-to-report-to-hmrc#employee-information

In other words, your employer should have updated its internal payroll records (for example, to send your payslip to your new home address) and it should also have notified HMRC automatically, when the next online PAYE return was submitted to HMRC.

I have not checked to see if this is a strict legal requirement of your employer or simply something that HMRC asks employers to do (you might be surprised at the number of times HMRC asks for information to which it is not actually entitled, as per the law) but if you are trying to establish whether or not they sent to the wrong address - and they should have known - then this might be useful. There should also be a record at HMRC of any correspondence sent, including to which address (it might not be a copy of the correspondence itself, but a note of a particular category of correspondence having been issued to you).

It is PERHAPS arguable that when you and your wife married, she became entitled to half of the rental income (and if she had no other income, then her tax-free Personal Allowance might be useful) but this would depend on the facts of the case.

In a similar vein, it occurs to me that, if your wife did have no other income, she might also be able to "transfer" a slice of her Personal Allowance (aka "Marriage Allowance", strictly the "Transferable Tax Allowance") which is not actually a transfer at all, but best described as her sacrificing 10% of her tax-free Personal Allowance, and you getting a Basic Rate tax reduction equivalent to 20% of what she has given up. She cannot do this if EITHER of you is a Higher-Rate taxpayer, (or were in the tax year in question), or if she is (or were) already a Basic Rate taxpayer in the relevant year (because it would cost her the same as it would save you). The so-called "Marriage Allowance" has been around since April 2015 and there are time limits to claim but it might yet be worth doing, as it is worth a little over £200 per year.

On the flip side, there could also be other implications if you are a Higher Rate taxpayer (or were, etc.) such as effect on pension tax relief or Child Benefit entitlement (if either or both of you were looking after children). However, these are all things that your appointed adviser should be assisting you with, as a matter of course.

I trust this will be useful, for now.

With regards,

Lambs


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