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UK tax axe falls on overseas property investors

HM Revenue & Customs has set up a team of investigators to track down UK-based individuals who are letting out property in Cyprus and other countries without declaring its rental income.

OVERSEAS property owners based in the UK are about to be targeted by a new HM Revenue & Customs “affluent unit”, which has been set up by the British government to address what it sees as tax avoidance by the rich.

A new team of 200 taxation investigators and specialists has been established by HMRC to identify wealthy individuals who, amongst other things, own land and property abroad … such as a holiday home.

OPP understands that the tax attack unit will concentrate on overseas property assets first, and then switch its attention to UK-based commodity traders (who have been accused of helping to drive up food prices,) before looking into the number of UK residents who hold offshore investment accounts.

HMRC says that it will be using sophisticated “data mining” techniques to try and track down people who own overseas properties, but do not pay the right amount of tax.

This might include someone who owns a villa in Spain which they are renting out, or an individual who owns a piece of land in France that is being used as business premises, said an HMRC spokesman. The experts will be looking for people who do not seem to be declaring the correct income and gains.

The new unit, which has been announced by the UK’s Chief Secretary to the Treasury, Danny Alexander, will focus solely on people paying the 50% top tax rate.

David Gauke, the exchequer secretary to the Treasury, said there would be “no hiding place” for tax cheats, adding that the UK government “is committed to tackling tax evasion and avoidance across all areas of the economy. That is why we allocated HMRC £917m to reduce the tax gap over the next four years. This new team is part of that investment.”

Ronnie Ludwig, tax partner at accountancy group Saffery Champness told OPP that “those who have been letting out their foreign property and declaring the rents received have nothing to fear, but those who own foreign property which has never been let out should be prepared to prove to HMRC that they have received no income from the property.”

“This will involve producing UK and foreign bank statements and being able to demonstrate that they could afford to purchase and maintain the property out of normal declared sources.”

Readers' comments

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  • Costas Apacket says:

    Capital allowances from when you originally set up your home can also be set against current/future income.

    Check with your accountant or HMRC.

  • Richard says:

    @Nigel H.

    This is correct – so in many cases – the ‘net net’ income on your property could be a loss. Tax rebates also only apply to property that have been used as short holiday lets (not full time tenants). 70 days minimum of occupancy with no single tenant being there for more than 28 / 30 (I think) consecutive days.

    My feeling is it’s worth starting to treat each house as a business with it’s own balance sheet. HMRC will respect that – and so will any potential future buyers if you can demonstrate that the unit is slowly hauling itself back into the black.

    Baby steps – frustrating I know. Tough isn’t it? This is real hard business though now. Any berk can coast along making a buck or two when the sun’s out and the economy is awash with money.

    Different story when everything is going to hell in a hand-cart.

  • @out of the frying pan into the fire – You can deduct allowable expenses from your rental income:

    letting agent’s fees

    legal fees for lets of a year or less, or for renewing a lease for less than 50 years

    accountant’s fees

    buildings and contents insurance

    interest on property loans

    maintenance and repairs to the property (but not improvements)

    utility bills (like gas, water, electricity)

    rent, ground rent, service charges

    Council Tax

    services you pay for, like cleaning or gardening

    other direct costs of letting the property, like phone calls, stationery, advertising

  • out of the frying pan into the fire says:

    Great does this mean that those who have lost money can get a tax rebate?.

  • Mike says:

    Dave – With all due respect I think that traditionally all HMRC and its predecessor the Inland Revenue task forces have more than paid for themselves many times over. In my opinion the action is long overdue, sadly it will only include those paying the 50% rate. It should include everyone who is earning any kind of income and not declaring it. I consider it stealing from the state which only serves to increase the percentage that someone else has to pay.

  • Jim says:

    “but those who own foreign property which has never been let out should be prepared to prove to HMRC that they have received no income from the property.”

    Wrong. You are innocent till proven guilty. It is the authorities task to prove you are fiddling the books, not the other way round.

  • dave says:

    Could this money have been put to a better use. I bet the money they retrieve will not cover these expenses.

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