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The Renters Reform Bill threatens the creation of a new landlord database, exposing those landlords who may have (perhaps inadvertently) incorrectly handled their tax affairs.
The landscape for landlords has changed frequently in recent years. Changes have increased or accelerated the various burdens landlords suffer. On the tax side, this includes SDLT rates increasing, mortgage interest relief reducing, CGT rates increasing, payment deadlines reducing, and CGT reliefs being removed.
Focussing on tax, a key problem is that tax complexity has increased, as well as the tax sums due. This is perhaps unavoidable – many own property, but the government only wants to target certain, difficult to define, property owners, and that requires complexity in the law.
The problem is that the rental sector includes very different types of landlords. Many of us might picture someone like Alan Rickman’s Sheriff of Nottingham when imagining the typical landlord - a feudal tyrant who dedicates all their time and resources to maximising their return, the sort of person who we might cheer at being heavily regulated, taxed ruthlessly and penalised harshly if they make (possibly intentional) mistakes.
Very many landlords are nothing like this however, they are the “accidental landlords”, the individuals who kept their flat when they moved and begun to let it out, for example. This category of landlord might make a couple of thousand pounds profit a year and work full time in an entirely separate field, they don’t spend their evenings and weekends studying the changes in the laws around the rental sector and can’t afford to keep top-notch lawyers and accountants on a retainer.
Unfortunately, some tax issues are more complicated for the “accidental landlord”, who might, for example, have to contend with partial private residence relief on a sale and a need to split decades of invoices into “capital” and “repair”.
Everyone should pay the right amount of tax, and identifying errors is important (not least to minimise interest but also to mitigate potential penalties). The errors this database would help identify will broadly split into two camps:
- The innocent mistakes – perhaps the “accidental landlord” who misses the brought forward CGT deadline on sale, or makes a mistake offsetting their mortgage interest.
- The deliberate mistakes - the “rogue landlord”– the Sheriffs of Nottingham, those who have purposefully decided to underreport/underpay their taxes.
The system is more likely to flush out a greater number of type one mistakes. As accidental, these won’t be artfully concealed.
There is an acceptance that as the draft legislation proposes a database of privately rented properties, this could add to the already widening mass of information HMRC has in order to collect tax. It is as yet unclear the extent to which HMRC will have full access to this, but it is likely that it would be at least enough for nudge letters to be sent out to landlords to rectify their affairs, or for enquiries to be opened (depending on what other information they have already).
further information
If you have any questions about any of issues covered in this blog, please contact Matt Spencer, Waqar Shah or a member of our Tax and Real Estate teams.
about the authors
Matt Spencer is a partner within the Corporate, Commercial and Finance team, specialising in tax law, advising on and efficiently structuring a wide range of corporate and real estate transactions including M&A, land transfers, developments and leases.
Waqar Shah is a partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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