Expat landlords letting out property in the UK have been warned to pay their dues or face heavy penalties by HM Revenue & Customs (HMRC).
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The warning was issued following two early morning raids in Ilford, East London, where two property investors were arrested on suspected tax avoidance charges relating to £1 million of undeclared capital gains tax.
The alleged bill arose from a string of property sales that the pair allegedly did not report to HMRC.
Alan Tully, Assistant Director, and Criminal Investigation HMRC, said: “We are investigating what we suspect is a large-scale, organised tax fraud to steal £1 million of taxpayers’ money.
“Today’s operation is part of a HMRC property taskforce campaign to clamp down on those believed to be dodging capital gains tax. It sends out a clear message – we will relentlessly pursue those believed to be involved in fraud.”
Landlords avoiding tax
The raid is the latest move in a HMRC crack down on landlords who do not pay enough tax.
Only 500.000 out of an estimated 1.5 million private landlords declare make tax returns including rental income despite the massive boom in buy to let investment over the past decade.
Around 18% of all homes are buy to lets or houses in multiple occupation (HMOs).
Many are owned by expats who moved on and rented out their former home behind them to leave a bolt-hole should they need to return from overseas.
“Unfortunately, many expats do not realise that they need to belong to the non-resident landlords scheme and should have arrangements with their tenants or agents to deduct income tax from any rent that is more than £100 a week,” said an HMRC spokesman.
Capital gains tax rules for expats are also changing on April 6, 2015.
New CGT rules for expats
Any expat owning a UK property will pay capital gains tax on any appreciation in value from that date.
With house prices in the UK rising an average 10% in the past year, according to the Office of National Statistics, the transition to a capital gains tax regime for expats is expected to be rather short.
HMRC’s take from capital gains tax is fuelled by rising house prices.
The tax paid in 2012-13 was £3.9 billion, and is predicted to hit £6.7 billion next year and £9 billion in 2018-19.
Changes in the rules for expats and trimming the exempt period for private residence relief from 36 months to 18 months are expected to add to capital gains tax bills as well.
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