Buy-to-let property ownership is rising, most of it fuelled by cheap loans.
According to HMRC this is a major area of tax fraud. Large numbers of buy-to-let landlords do not report their in come and gains and HMRC are largely powerless to do much about the problem.
The solutions to the problem are, however, quite simple. There are two.
The first is to require that every letting agent advise HMRC of every property they have sought to or have let each year, and who the owner they are acting for is. That's not hard. And they have the information. The information should cover holiday homes as well as buy-to-lets. It would be too easy to get out of reporting otherwise.
Secondly, every time a bank creates a buy-to-let mortgage it should have to notify HMRC of the property involved and the real owner (who they have to identify for money laundering purposes already). They should also be required to submit a register of all such mortgages in existence during each year to HMRC.
All reporting should be in machine readable format so HMRC can readily use it - including to send letters straight to landlords.
In combination I suspect this would mean the existence of maybe 98% of all buy-to-lets would be notified to HMRC. That doesn't guarantee all would pay their tax, but the means to tackle them would exist. And that is vital.
Now, will we see this in the Finance Act 2014? I doubt it. But I can hope.
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Secondly, every time a bank creates a buy-to-let mortgage it should have to notify HMRC of the property involved and the real owner (who they have to identify for money laundering purposes already).
I’m not sure this would be entirely effective. If someone buys a house on a conventional mortgage, then subsequently moves out and lets the house, how would the mortgage lender find out if the owner did not tell them?
I agree – not perfect – but actually you do have to tell a bank that and if they were told they’d have to report
If they weren’t, well that’s tax evasion with all the penalties that follow – easy to draft that one
james, you say ‘buy a house on a conventional mortgage’ – but it hasn’t been bought! Isn’t this a misuse of language?
The house has been bought
There is a loan on it
I think James was right
Wait for the interest only mortgages to hit the fan-we’ll see what has actually been bought!
This latest lending for buying scheme should have totally excluded buy-to-let. Buy-to-let is a money laundering scheme, pure and simple and thrives on bubbles. Stop the whole damned thing!
Simon your comment on buy to let is a pretty offensive, generalistic and inaccurate remark to make to say the least. I let out my old flat when myself and my partner moved in together and the flat wasn’t big enough for us and the two dogs we have, so we bought a house. We were able to keep my flat and decided to let it out as when we retire pensions will not be worth much and saving rates are so poor. I also pay tax on the rental income. I agree with Richard’s article by the way, it makes sense and means that HMRC do not have to rely on landlord’s honesty to ensure that they collect the tax that is due.
I should stress – I think a private rented sector is an important part of the economy – and see no reason to stop private rental as such
I am arguing against giving it a range of subsidies
That’s something very different
Well, by renting a property and using it as a hedge against inflation/pension value you are innocently contributing to real estate price inflation – the idea of housing as investment is a fundamental problem in our economy and your logic exposes this – a prime example of personalised benefit creating social harm!
You could even say that help-to-buy, with its high limit, was never intended for ladder-bottom buyers.
Surely there are laws already in place for people not declaring their income on their tax returns. The problem is, the penalties for missing stuff out, if any, would appear to encourage deceit.
If someone has obviously not declared a significant income (“er, I forgot I had another property which makes me £10,000 income” shouldn’t work…)then their should be huge financial penalties. Tax dodgers by their very definition are greed ridden money worshippers. Hit them where it hurts.
But finding the right people to pursue is task number 1
That’s why I propose this
It is frightening that there aren’t the right people in place already. Pretending to (ie deceiving) the taxman that you aren’t receiving rental income must be the most basic type of tax-dodging. So I am sure with a half-nifty accountant then the rest of the huge tax-dodging industry must be an absolute breeze.
But I guess that is what you are saying anyway, Mr Murphy.
I actually completely agree with this blog post. While there are indeed adequate penalties to deal with those who do not declare or under-declare their income on their self assessment returns, it’s presumably not an easy area for HMRC to police as the individual amounts involved may be small and therefore it’s not proportionate to spend a lot of time and human resources on each return. This kind of centralised reporting which would throw up tax evasion would also add useful knowledge to HMRC’s new evasion detection software and be a useful starting point for a raft of COP 9 investigations. Penalties for intentional tax evasion are already pretty high, incidentally – 100% for onshore evasion and 200% for offshore evasion, not to mention the threat of prosecution.
I suppose there are all kinds of surveillance and compulsory reporting that could be put in place to lower tax avoidance and evasion, and I am sure they would be effective….
The problem is that the public don’t like being monitored, checked and forced to justify their behaviour, it makes them feel like the State is not on their side but wants to get them………hence all the opposition to state surveillance even when in the interests of security.
You could remove a lot of tax issues and crime by making people file a daily report or their movement, bank account and cash spending but there needs to be a balance.
So far tax evasion is not seen as a big enough problem for you to get the public to consent to the king of monitoring you want above, rightly or wrongly!
Completely wrong
they’re happy with PAYE
They’re happy with their interest being reported
They don’t like cheats
no one will mind about these suggestions
Except those who support cheating
I wouldnt trust estate agents to report anything properly. Your proposal re banks and buy to let mortgages sounds more realistic and workable in the real world.
Would be fun to find the crooked estate agents though…..
“they’re happy with PAYE”
“They’re happy with their interest being reported”
Have you any proof of that at all?…..any polling?
Or is it just, well they put up with it now so they must like it.
Do you know what?
I don’t really care to some extent
People clearly want what tax pays for
So it has to be funded – and I think people outside neoliberal think tanks know that
Helen said: ” Penalties for intentional tax evasion are already pretty high, incidentally — 100% for onshore evasion and 200% for offshore evasion, not to mention the threat of prosecution. ”
Oh really. Pretty high? Not much a threat either. Considering the chances of being caught look to be pretty low, I would say many consider it well the risk. A bit like the scum who drive without car insurance – the fine cam be less than the cost of the insurance.
For obvious and blatant tax avoidance the penalty should be say 1000% and imprisonmnet. Oh, might that cause bankrupty and ruin people’s lives…..oh dear.
oops,
*not much of a threat*
*well worth the risk*
*the fine can be less than the cost of insurance*
Most countries levy a property tax on the owner, not the occupant. If we had a proper progressive residential property tax this would rightly fall on the buy-to-letter, making it not such an attractive option. If the property tax was levied on the land value, this would ensure that the buy-to-letter provided a service rather than being purely a rentier.
A home is a basic human necessity and someone has to own it. Better those that use it own it, but where renting is truly demanded letting property could be a perfectly respectable business. Sensible taxation (plus decent wages – required in any case) would solve the housing problem permanently.
Carol, do you think our culture will ever give up the housing-as-investment mania? A House, surely, should be a place where you live and from where you contribute to the economy not a money devouring Gorgon. Sort out house prices and decent wages are an immediate result! I’m not even sure that individuals need to own a house in the first place, take away it’s attractiveness as an investment and we could have a culture where we see ourselves as guardians of the house for the coming generations-paying rent that goes back into housing itself. If houses can be owned by trusts under a LVT we could create proper stewardship of housing – the rentier class will not let this happen under any circumstances.
I cannot see why ‘the left’ see home-owning as somehow unsavory. A home is a personal thing and we should be able to enjoy creating our own environment. Buildings wear out and I cannot see why we should consider handing on a house to ‘coming generations’. As I said, someone has to own them. Do you really see that it it’s something that the state should provide for everyone according to individual tastes? It is the land/location which should be considered as part of the commons, and for exclusive use of that we should pay the appropriate fee.
I do not see home owning as wrong
But ‘owning’ is always long term tenure
And that is fundamentally desirable for many, many reasons
carol- I don’t necessarily disagree with ownership as such as long as house prices are stabilised, if so, people will not be so obsessed with ownership and the concomitant hope for housing bubbles that provide windfalls. In Housing Associations you can create your own environment and make it ‘your’ home -with private landlords this is more limited which is why the Government trying to equate private, ripp off landlords with social housing is based on a false comparison. Anything other than social landlord is going to be exploitative. Buying to let, is ,in my view, a disgrace because the money you pay for housing needs to go back into housing not to someone who wants to finance his kids private schooling by grabbing at least 50% of your earnings. There are many ways of erecting houses using cheaper more sustainable materials (straw bales for example) but the construction industry won’t allow this – a green deal might!
“There are many ways of erecting houses using cheaper more sustainable materials”. The building is not the problem. Most second-hand houses on the market are worth considerably less than their rebuild value. Before you can build, you have to acquire the land. Rebuild cost for an average house is about £80k; the average house price is £160k – £230k (depending on data source). The remainder is land value.
What I find astonishing is that landlords today, unlike the 60s or 70s, are completely unashamed.
I love the bit in the three musketeers where Athos kicks D’Artagnan’s landlord downstairs. After some outcry Athos says “the fellow was in your room, up to no good, so I kicked him downstairs, he claimed to be your landlord” D’Artagnan replies “he is my landlord !”
“All to the good”, says Athos, “I hate landlords”.
And don’t we all.
William – your post brought to my mind the Bob Dylan song – ‘Dear Landlord’:
Dear landlord
Please don’t put a price on my soul
My burden is heavy
My dreams are beyond control
When that steamboat whistle blows
I’m gonna give you all I got to give
And I do hope you receive it well
Dependin’ on the way you feel that you live
No problem with your policing suggestions.
But in my experience where there is borrowing on the the let property, there is little or no taxable profit. Many properties were bought in the expectation of Capital Gains- which has not occurred- in fact there is often negative equity.
So I suspect this is bit of a red herring issue, whereas attention should be directed elsewhere perhaps.