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The Downfalls Of Buy To Let Properties

Apr 26, 2008
A crackdown by UK tax authorities this week has seen money exchange hands in return for information regarding peoples accounts where the taxman has suspicions of people engaging in tax evasion. It seems they the Inland Revenue have no scruples when it comes to privacy then!

Investors in buy to let properties have not gone unnoticed by the taxman either. This week has seen them send out hundreds of letters to small time landlords who they believe are not declaring enough tax on their buy to let properties.

It may well be the case that mistakes are made when paying tax but is it fair to penalise these buy to let landlords, issuing fines and prosecutions, under such circumstances when UK tax laws can be so complicated? Maybe they would do better to find the real tax evasion criminals who know how to work the system for deliberate financial gain.

If rent on a buy to let property is very low, it is possible that no tax is even due, but all income should be declared and dealt with through the appropriate authorities. The Inland Revenue have been keeping a closer eye on property investors of late amid fear they are under declaring how much they owe.

A complex computer system has been used to trawl through ads for property lettings, double checking these against the people who are declaring their tax payments. This is yet another example of the UK system targeting people that are already trying to do the right thing and actually making them wish they hadn't.

The Revenue estimates that the average buy to let property can make its owner 10,00 pounds a year richer, before expenses. They are also asking that landlords go back over records for the past six years, checking their tax duties. If caught under declaring, landlords could face penalties and bills for unpaid tax as well as interest charges.

It would be interesting to see if they would pay interest on overpayments, were matters the other way round.

Interest only mortgages can save a buy to let property owner approximately 1,500 pounds in tax payments over the life of a mortgage. If you have ever lived in the property you are to let, you can claim letting relief. This is a highly valuable tax break, worth 40,000 pounds per owner. If the property is jointly owned between yourself and your spouse, tax relief of 80,000 pounds can be gained.

As you can see, there are ways to keep the tax man from getting his hands on all your hard earned cash but it must always be kept above board otherwise you will find him coming down on you like a ton of bricks.

Taxation is not the only pitfall for buy to let landlords. Dodgy letting agents can also be costly pain the rear. One landlord found this out the hard way. After moving abroad to fulfil a life long dream, she left her UK property in what she thought was the trusted hands of a letting agent.

Despite the tenants paying their rent on time, the agent had not passed it on and the owner was left with thousands of pounds worth of debt. As a direct result of this, the owner was forced to give up her dream and come back to the UK to deal with the problem, taking the agent to court to try to retrieve the money which had, effectively, been stolen.

Anybody can set themselves up as a letting agent, taking advantage of the buy to let property investors. To avoid problems with unscrupulous agents, ensure you use one who belongs to the Association of Residential Letting Agents. It is a voluntary group but it shows integrity on the behalf of agents in their target of doing a good job.

Both the incidents of dodgy letting agents and the complicated tax laws make the buy to let property market a little precarious for the novice but help is available. Take advice and use accountants and registered agents and your investment should be secure.
About the Author
Expert investor Catherine Harvey looks at the methods deployed by UK governements to check those buy to let property investors are paying what they should.
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