Buy to let and staying on the right side of the tax man Remember that when you are doing your tax returns that the income you have generated from buy to let properties must be declared, this relates to your whole portfolio whether in the UK or aboard.
In any given year, a small percentage of individuals are selected for an investigation by HM Revenue and Customs. Do not think that this is totally done at random; it is generally achieved through their risk assessment computer being triggered to flag that a specific tax return may have been questionable.
You should remember that all lettings agents are legally bound to send full lists of the landlords that they have on their books or have previously dealt with. It is not unknown for the Inland Revenue to also visit University campuses and pick up details of landlords, or to go through local papers and look for adverts offering respective accommodation.
So to avoid the possibility of an inspection or if you find yourself in such a situation, it is wise to follow the following rules:
- Always have complete and accurate records of all transactions.
- Have all transactions supported by either a third party document, or at the very least a written note, dated and signed.
- Keep a separate bank account for your properties from that of your personal accounts. Bank statements are great third party evidence and can be easily explained.
- Keep on top of what you are claiming; ensure that you understand the difference between repairs and improvements. (Simply an improvement is something that did not exist before.)
- Keep a mileage log. The inspector will often question mileage if at the same time you are claiming for a letting agent.
Finally remember one simple rule: The tax inspector will seek to deny you a tax deduction for any expenses that you do not have the corresponding documentation to authenticate. So if there is one area that you should observe—keep good records. |
