HMRC has launched its latest ‘nudge’ campaign, targeting buy-to-let landlords who incorporated their property business in the tax year 2017/18 but reported no capital gains tax (CGT) liability on their self-assessment tax returns.
The HMRC letter, which is understood to only have been issued to a small number of landlords, asks the taxpayer to check that they have correctly calculated the ‘incorporation relief’ available to them. It also refers to some specific technical areas that may be relevant with references to HMRC guidance.
30-day deadline
Landlords who receive the letter have 30 days to respond to HMRC, or are told to expect an investigation to be opened with a view to discovery assessments then being issued to collect under-reported tax where due.
If the taxpayer needs to disclose an error, they must submit a disclosure to HMRC using a dedicated email address provided in the letter.
If the taxpayer, after considering their position, believes that the information they have provided on their tax return is correct and that they do not need to make a disclosure, the letter asks them to let HMRC know by emailing another dedicated email address provided in the letter.
Zoe Roberts, a tax partner in our real estate tax practice, said: “Given the increasing number of landlords incorporating their property businesses, it is unsurprising that HMRC are focusing attention on ensuring that the correct amounts of tax have been reported and paid. My expectation is that we will see similar campaigns targeting incorporations undertaken in 2018/19 and subsequent tax years in due course.”
Tax liabilities and penalties
HMRC’s latest campaign is a timely reminder to any landlord considering an incorporation of their property business that it is essential for the detailed conditions of the relief to be satisfied. Where this is not the case, significant and unexpected tax liabilities may well arise, as well as interest and potentially penalties.
Given HMRC’s increased focus on the sector, landlords who have incorporated their property business in 2017/18 and subsequent periods would be well advised to double check that they are fully compliant with their tax affairs.
