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HMRC's property tax campaign: The lowdown

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28th Feb 2013
AccountingWEB
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Repeated queries in AccountingWEB's Any Answers section indicates that something is stirring up interest in property tax issues. Jennifer Adams notes the formation of a new HMRC property sales campaign and discusses the implications for advisers.

The backlog of 200,000 tax cases waiting to go to tribunal would take 38 years to clear, which is something the media frequently misses while engrossed in 'tax dodge' headlines, Bearing in mind the likely delays and costs, you think HMRC has better things to do and more certain cases to tackle than those focusing on principal private residence (PPR) relief for capital gains tax (CGT) - especially since its supposed to be one of the more straightforward, well known and well used tax reliefs.

Over the past three years, more than a dozen cases been heard and there has been a noticeable increase in questions being asked on Any Answers on property tax and PPR. Could this be a sign that HMRC’s Designated Compliance Unit for property has targeted PPR as part of its tax evasion policy and is not letting go?

In response, AccountingWEB is launching a campaign of its own focusing on property tax matters over the next few months. This first article looks at HMRC's latest property tax evasion campaign and at how HMRC chooses cases to investigate.

Future articles will focus on the PPR relief itself, showing that it is not as straightforward a claim as is thought, and will consider what can be learnt from recent tax cases. In addition, there will be an article stressing the importance of the PPR election for those who own more than one property.

March 2013 property sales campaign

HMRC's online progress report on current and previous tax evasion campaigns states that the ‘Trades Sweep Up’ appealing to skilled tradespeople planned for December 2012 has been postponed, but a  property sales campaign targeting those who have profited through owning and selling second homes or multiple properties is due to start in March 2013.

The "campaign" offering those who have failed to comply an opportunity to come clean on advantageous terms under voluntary disclosure protocols follows targeted taskforces that looked at property transactions in London a year or so ago, and property rentals in several regions during the summer. These must have confirmed HMRC's suspicions enough to justify a switch to the new disclosure strategy.

It isn't clear yet which property owners will be targeted. Could 'multiple properties' include owners who have moved from one PPR property to another a ‘multiple’ number of times?

The concentration is more likely to be on buy-to-let landlords.

When those with portfolios of three or more properties in the North West and North Wales were targeted, the results were compared with their tax return CGT pages.

In last year's Closing in on tax evasion report, HMRC was particularly pleased with results gained from "third party data" and found non-disclosure in once instance by an individual who owned 11 properties in several Mediterranean countries. Further results from previous campaigns are mentioned on page 11 of the same report.

Investigations - how?

The campaigns promote voluntary disclosure; otherwise an HMRC inspector is not supposed to commence an investigation unless there is a real reason for doing so.

Whether that reason is valid is open to interpretation, as was discussed the recent Gabelle Tax Analysis on the PPR tribunal case of Mr PA Ellis v HMRC [2013] UKFTT 003 (TC) where the taxpayer won but not after what must have been some years of worry.

Gabelle correctly wondered why someone at HMRC was prepared to sanction the referral of this case to the tribunal.

The Ellis case concerned the validity of a PPR election, but HMRC is increasingly using risk assessment techniques to shape its tax investigation policy. The department is particularly proud of its Connect computer system, which draws and analyses data from multiple sources, including property ownership and transaction data. 

This system has been linked for a few years now to the Valuation Office in Worthing, bringing together information that was previously spread over the UK in the separate district councils.

Collating information this way makes it easier to compare, for example by producing historical lists of property ownership by a landlord.

Other methods of gleaning information

Some of the other methods given below may be well known:

  • Banks - these are required to provide more information now than just details of interest over a set amount
  • Property websites - a mine of information not only for a house purchasers and renters. It produces an estimate of the capital appreciation of a house since the last transaction
  • Credit agencies - such as ‘Experian’ are required to give details of loans and mortgages as well as identifying linked names and addresses
  • Databases - the Northgate Public Services Information System is just one used by HMRC that contains details of housing benefits paid to landlords by any UK council
  • Land Registry - the case of Moore v HMRC 2010 showed use by HMRC of documents held
  • Electoral Register - a first place to look
  • Property purchase documents - since July 2011, these require the declaration of NI numbers for individuals and URT and/ or VAT registration number for companies and partnerships
  • On foot -  during Wimbledon fortnight, HMRC investigation teams apparently knock door-to-door to ascertain whether homes have been rented out or are being used as unofficial boarding houses. This information is then retained and checked when the property is finally sold.

Are you aware of any other methods?

Replies (6)

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By AddsUP2Me
28th Feb 2013 21:48

Knocking on doors in Wimbledon week asking people who they are and what they are doing? Wowzers.

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By grecianwebb
04th Mar 2013 12:33

Wimbledon

I'd suspect knocking on doors during Wimbledon week was to ensure these people declare the rent where they have moved out and rent-a-room cannot be contended, as opposed to worrying about the CGT given that would be minimal in the scheme of things.

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Jennifer Adams
By Jennifer Adams
04th Mar 2013 12:50

Yes... 'grecianwebb' ...

What I was trying to point out was that HMRC have ways of getting to know matters and initially the 'Wimbledon' visits would indeed be to find out whether the rental income was being declared.

This will therefore then be on HMRC's records so that when and if the property is subsequently sold CGT could  be checked out.

I met an exHMRC inspector who knew of the 'Wimbledon' visits and said that they also discovered some properties that had been let for a while and not declared rental income and hence would be subject to CGT when sold.

By the way...in the article under 'Property websites' I had initially quoted the 'Rightmove' site which does estimate the capital appreciation etc etc but the name appears to have been deleted.

 

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By Martin B
04th Mar 2013 15:55

HMRC property tax campaign

flagged

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By David Gordon FCCA
05th Mar 2013 12:38

Ubique

With this  initiative, and that intiative,

One wonders who they have left at home to mind the shop.

 

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By moneymanager
06th Mar 2013 07:05

Old concern

I am sorry to say that in the earlier days of the extension of a duty to report suspected money-laundering (i.e. broad definition) I found myself obliged to make a report on a client in just this scenario. A mutiple property landlord declaring a large detached house in N London as his PR and actually living in a small flat round the corner.

I believe in tax mitigation which whas what I was doing for the client but his was evasion in my book.

But look on the brigth side; just think how many of the great and the good in 'the House' will be shaking in their boots over all that flipping(ek) they did. About time too.

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