Tax on buy to let property.


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including City AM.

The taxman seems to have buy-to-let investors in his sights. For a week now the papers and the net have been full of stories about a possible clampdown. The Revenue is said to be looking closest at three key areas. First come ‘ghost landlords’ - people who collect rent but don’t declare it. Then it is interested in undeclared capital gains. Finally it thinks too many people may have wrongly claimed tax relief on the capital part of their mortgage repayments as well as the interest.

Just what this possible clampdown will entail is less clear. But at the very least it has to be seen as a warning shot for property investors to get their tax affairs in order for the future. It was easy to treat buy-to-let lightly back in the 1990s when the sector was still being born.

Lots of the early investors were learning as they went and there wasn’t a whole lot of information and support. As a journalist I admit that we were probably guilty of trivialising the sector as well. I remember when I was first asked to write a column about property investment in the Mail on Sunday’s money section. The original idea was to call it ‘The Amateur Landlord’ which perpetuated the idea that it was all a bit of a laugh. No wonder, perhaps, that Revenue regulations weren’t the top of everyone’s minds back then. Buy-to-let just seemed like a fun part of everyone’s dinner party conversations. Across the country we all seemed to know someone who had made a fortune snapping up properties on the weekend. These lucky people certainly never seemed to talk about the tax implications of what they were doing.

Today it’s all very different. Bookshops now have whole shelves devoted to guides to starting and running a property empire. The internet is full of information. Landlords’ associations have meetings across the country. And it is only right that the Revenue gets serious as well.

Anyone who hasn’t paid much attention to tax until now should catch up fast. The sums and the calculations that have to be done on each year’s tax form are complicated. But the individual rules and allowances are actually pretty clear. There are plenty of perfectly legal ways to keep buy-to-let tax bills under control. This summer is a very good time for us all to refresh our memories on how they work.

It’s worth checking up on some of the newer rules at the same time. Alliance & Leicester has just released a shocking survey that says over half of all landlords don’t know about the Tenancy Deposit scheme that became mandatory for new tenancies in the spring. The ignorance is most widespread in East and South East of England where 63 per cent of landlords didn’t know they had to comply with the rules.

Landlords who don’t know about the new scheme probably don’t know about the penalties for non-compliance either. And they can be pretty tough. You can be forced to pay your tenant up to three times the deposit if you are not in a proper protection scheme. And you lose rights to the new dispute resolution services. To get more information on the new system go to www.direct.gov.uk and search under Tenancy Deposit.

Remember that person we all used to know in the 1990s who had made a fortune snapping up properties at the weekend? Back at those dinner parties we were all desperately envious of them. Whole evenings could be spent saying how lucky they were – and how much we all wanted to follow in their footsteps. Well, in 2007 buy-to-let is back as a prime dinner party conversation again. But this time the tone is a little different. Suddenly everyone seems to hate property investors.

Read the letters pages of the papers last week and the disgust was palpable. People were desperate to write in following the stories of the Revenue’s clamp down on taxes. And they all said pretty much the same things. About time too. Serves them all right. They don’t deserve any better. It’s time to see the back of those property parasites.

Buy-to-let is on its way to becoming the investment that dare not speak its name. Investors are accused of ruining the financial chances of luckless first-time buyers. Of actually damaging the housing stock of the nation by filling properties with people who don’t have any sense of ownership. And of enjoying tax breaks that seem to outsiders to be unnecessarily generous.

This backlash has probably got a lot further to go. And in a strange way it provides an extra incentive to get things right on things like tax and tenancy deposits. Because nowadays no landlord can expect much sympathy when things go wrong.