Property investors are being urged to check their tax commitments as profits gained in the recent property boom attract the attentions of Her Majesty’s Revenue and Customs (HMRC) Officers.
According to finance experts in the rental sector many landlords will have to pay two years tax liabilities within the next few months, leaving a dent in their bank balance and possible cash flow problems.
Geoff Davies, a partner at one city accountants firm, said: “Many buy-to-let landlords came into profit on their investments in the tax year that ended on April 5, 2011, after the interest rates they were paying were slashed during the recession. This means that landlords could have to pay as much as 24 months’ tax in just a six month period. Tax for the 2010/11 tax year was due by January 31st 2012 along with half of the tax for the current tax year, while the remaining half of the tax for the 2011/12 tax year will fall due on July 31st 2012.”
This may only be the start of problems for some landlords who have taken advantage of the rental boom and now have landlord insurance on several more properties. Experts expect some landlords will have to sell part of their portfolio just to keep the taxman at bay. One option for buy-to-let landlords faced with tax bills they cannot meet due to cash flow problems is to borrow the money and offset the interest they will have to pay on the loan against their tax liabilities. As with buy-to-let mortgages, loans and overdrafts arranged in relation to their landlord business are an allowable expense. This means that private landlords can get tax relief on borrowings up to the cost of their property, or its market value when it was first let out.