Buy to let landlords are again being reminded to ensure they include cash raised from property sales in their tax returns, by accountants UHY Hacker Young.
The firm says it is aware HM Revenue & Customs (HMRC) is thoroughly investigating Land Registry records to check the accuracy of tax returns.
Studies have focused on people who have bought and sold properties for some months now, with accountancy firms reporting a rise in capital gains tax (CGT) inquiries in March.
However, using the Freedom of Information Act, Hacker Young has discovered that in 2007/08, HMRC investigators raised £60 million in extra CGT while two years later they raised £74 million, representing an increase of 23 percent.
While some landlords may have straightforwardly concealed the sale of a property from HMRC, problems can also occur when improvements are made and a property is sold on.
In addition, there can be complex tax issues around the practice of ‘flipping’, which means switching main residences.
Roy Maugham, a tax partner at UHY Hacker Young, told the BBC: “This is a massive increase in CGT from enquiry work, particularly as the amount of CGT payable has collapsed as asset values slumped during the recession.
“It shows just how aggressive HMRC is becoming in tackling tax evasion in this area.”
He added: “With huge pressure on HMRC to maximise tax receipts to contribute to reducing the public deficit, it is likely to step up activity to another level in the coming years.”
A spokesman from HM Revenue and Customs said: “Our enquiries are risk based, enabling us to concentrate our resources on the non compliant, reducing the burden on honest taxpayers.
“We risk assess returns using a variety of methods, as well as cross-matching database information, both our own and external. Enquiries into the disposal of second homes are just one area we look at.”
Hacker Young advises that where there is CGT to pay, a landlord can reduce the bill by offsetting the cost of buying or selling the premises, such as legal and surveyor’s fees.
The cost of any enhancements during the period of ownership, such as a loft extension or garage or conservatory, can also be offset.
However improvements such as painting and decorating do not qualify for tax exemption as they are not capital expenditures.
