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Government scores own goal by adandoning buy-to-let clampdown

The plan for a new register of buy-to-let landlords - now abandoned by the new government - would have made it easier to clamp down on tax cheats, Lorna Bourke argues.

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by Lorna Bourke on Jun 15, 2010 at 13:09

Government scores own goal by adandoning buy-to-let clampdown

The coalition government has scored an own goal by abandoning plans to regulate the private rented sector through a register of landlords, licensing of letting agents and compulsory tenancy agreements. It was a golden opportunity to tighten up on widespread tax evasion.

Even market practitioners have suggested that abandonment of the buy to let plans is a retrograde step. As Hugh Dunsmore-Hardy of estate agency Winkworth Franchising Ltd points out, ‘estate agents are subject to statutory regulation and are required to provide routes to independent redress, whereas letting agents are not subject to such regulation. Yet they have far greater access to clients’ monies which remain unprotected.’

‘Furthermore, evidence of variable standards of service by lettings agents across the country leaves either landlords or tenants in a precarious position when pursuing compensation for unprofessional and inadequate service. The new coalition government’s decision to abandon very advanced plans by the previous Labour government that would have protected the interests of tenants and landlords is not a welcome move’.

The influential Association of Residential Lettings Agents has been critical too, saying it was ‘extremely disappointed’ by the government's decision, and that tenants were not being adequately protected. ARLA has long campaigned for the introduction of compulsory regulation of letting agents and points out that, ‘currently, any person or organisation can become a letting agent. Until that is changed via national regulation, unprofessional, unqualified and unethical operators will continue to exist, to the detriment and expense of consumers and the market as a whole.’

But there is a much more important reason for all landlords to be registered – tax evasion on a grand scale. Nobody knows how many individuals own buy to let properties on which they receive undeclared income but the figure is likely to be high amongst small landlords. Many pretend to believe that since most of the income is cancelled out by mortgage payments, they don’t have anything to declare.

This is, of course, untrue since only mortgage interest and not capital repayments are offsettable against rental income. Even more individuals let out a second home, either in the UK or abroad, at ‘mates rates’ for cash and pretend it is a contribution to the running costs.

In addition, unless they declare the sale of a buy to let property or second home, they can easily evade Capital Gains Tax too – and many do. There is virtually no mechanism for ensuring compliance with CGT legislation on property and CGT has often been described as a ‘voluntary tax.’

It should not be beyond the wit of government to devise a simple registration system, perhaps operated by the Land Registry, whereby house purchasers would have to state whether a property purchase was a principle private residence or not. This could be changed at a later date with a re-registration if the property ceased to be their PPP. This could be cross referenced with tax returns and enquiries made by the tax man about potential undeclared income and CGT. At the moment HMRC has no idea how many people own second homes or investment properties – and even less idea how many own property abroad.

The cost of compliance with this requirement would be nil since it would be just another item on the Land Registry forms and would be administered by the conveyancing agent or solicitor. The system could be programmed to throw up any cheating homebuyers who claim that more than one property is their PPP. It would be 100% effective bringing every potential tax evader into the tax net over a period of time. On average around one million properties change hands each year so it wouldn’t take long before the vast majority were registered either as a PPP or a second home or buy to let property.

Much of this information could be acquired now. According to the CML there are around 1.2 million buy to let mortgages in existence. If HMRC obtained access to this information – as it has done with offshore bank accounts - it would be a simple matter to check whether income tax and CGT was being paid on these properties. If HMRC is clamping down on undeclared interest and investment income held in offshore accounts, it is about time they did something on undeclared rental income.

Abandoning the Register of Landlords is probably no great loss since it would be difficult if not impossible to check on compliance. But rounding up tax evaders ought to be a priority for this government. The black market is huge and will become even larger if VAT rises to 20% as expected.

There are other, equally important, considerations too. The abandonment of the requirement to provide a written tenancy agreement leaves tenants very vulnerable and open to exploitation by unscrupulous landlords anxious to evict tenants. This was not a good move.

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17 comments so far. Why not have your say?

I am a serving Inspector of Taxes and I completely agree with the points made about evasion. A word of warning however, HMRC have lost 25000 staff over the last five years (since the Genesis of the new Department) and are likely to lose more staff over the next five. As a result our compliance effort is suffering, and won't be assisted by the coalition's recent decision.

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The more property articles I read, the more they are telling me I’m an idiot for being honest and prudent, and not lying about income to go into £1000's of debt to speculate on property and easily evade tax.

If what the tax inspector says is true, I can't wait to join the rest of the property spiv's and slumlords. Why not? There are increasingly numerous examples implicitly telling people they should!

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It's probably because the MP's are all on the fiddle too!!

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In the spirit of openness, who is the minister who abandoned the plan?

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What is a serving Inspector of Taxes doing posting on an Investment discussion site during working hours (using a taxpayer funded computer and internet link)?

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The article appears to ignore the fact that HMRC has a 'hot line' to the Land Registry. The taxman can quickly establish who bought and sold what and for how much and then cross reference to an individual's tax return form. This closes the CGT loop hole. I'm also guessing a "government department" will also have access to the central database for Energy Performance Certificates (EPCs), to quickly establish what is a rental or sales property (has to be declared by the DEA undertaking the EPC). If an address has an EPC and it's for rent, it won't take HMRC long to ask where's the rental income? Regulation may only attract the honest, but let's not be daft enough to think the taxman has no tools with which to catch the rogues!!

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Anonymous 2 I'm sure you'll stay prudent and honest. Its not in your nature to lie and deceive. Lying is the curse of the modern world but thankfully there are still many who dont. For some its the norm if its convenient (supported it seems by the media and politicians) but that way lies the rot of our modern society. Need to start with our children. Is there a society against evils of lying? If so I'd join. (Even to the IR&C - avoidance of course yes)

Dont lets be Greeks! Thats where it leads and worse.

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As an honest landlord I dispute the assumption by the biased writer that there is widespread tax evasion either with rents or capital gains. Any property let through an agent requires personal information supplied by the landlord and any deposit as required by law has to go to a recognised deposit holder. What with company lets and buy to let mortgages I think it highly unlikely that there is widespread evasion as Ms Bourke assumes because with so many checks in place only a very foolish landlord would think he could get away with it. The landlords' register would have been just another money-making exercise by a spendthrift government which would have deterred many from going into by to let. If there is evasion it is likely to be by those owning homes in multiple occupation. But again here the HMO rules are very rigid - and the penalties for non registration are severe. The sentiments of Ms Bourke may strike a chord with Guardian readers but certainly not with I am sure with the majority of landlords.

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I have expressed my opinion.

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The more you complicate being a landlord the fewer landlords there will be and consequently fewer homes to rent.

As ever there are far more bad tenants than bad landlords.

Trust a Tax Inspector to skive time off that we are paying for pretentious twit.

He would have almost certainly have voted for the last lot . Lets bring in Flat Tax and no allowances and we can get rid of another 25000 of the lazy parasites.

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THe HMRC are no fools and you are a fool if you think they are.

when you buy a property there is a paper trail I know landlords who have been contacted about self assesment

And the HMRC will come down hard on any landlord

Its just not worth takeing the chance in my humble opinion

I fine HMRC fair to deal with when the answer the phone

I think the Landlord assications should take up the chalange and bring in there own registrtaion and i dont mean soft touch registration

This would show Tenants and the genaral public that there are proffeional good landlord that do play by the rules

The NLA ARLA ect will always side step this issue

If you have nothing to hide why should you worry

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Have I perchance stumbled on the Morning Star website by accident? Or Guardian Mk 2? I thought this was meant to be a serious website about financial matters not crude landlord-bashing, accusing us all of tax fraud. In no way would the extra bureaucracy outlined above serve any useful purpose, except to justify the creation of an army of Soviet pen-pushers at taxpayers' expense. The public sector has been wasting money hand over fist for a decade - it has to stop - and congratulations to the new Govt for doing away with this half-baked pointless red tape in a sector that is the only functioning part of the housing market at present.

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The "Tax Inspector" clearly isn't.

Lorna Bourke is clearly pushing a Socio/Labour/Trot line against private investors.

The existing money laundering tax evading aparatus is clearly working well which is why the number of Tax inspectors have been reduced.

The experience of flat rate taxation has clearly been proved in so many countries that the only impediment here is the expense of mass redundancies in HMRC if it were to be introduced.

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Most property investors are law abiding tax paying honest people which is why Broon's mad centrist registration is unnecessary since it would have only created another huge band of unwanted unprofitable labour voting civil servants.

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There is a Landlords Register in Scotland. Each Landlord and property much be registered and of course each at an additional cost. The register is operated by the Local Authority.

From what I can gather its a total farce. Despite being registered from the outset when the Local Council wanted to get in touch with me regarding a specific property, they couldn't.

The councils may have taken money from Landlords but I suspect "the Register" is useless and would therefore be of no benefit to HMRC anyway.

Rediculous scheme and glad to hear its not going any further.

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Couldn't agree more re the criticism of Lorna Bourke - an article of utter drivel. Is this woman paid for this rubbish? I agreee that it is idiotic from start to finish and should be in The Grauniad, which is also full of pretentous claptrap.

Our family have been landlords for years and there is no way landlords do not declare their income: how could you possibly not declare regular sums of money clunking into your account? All purchases and sales are recorded and as other writers have pointed out, the information is easily available to the taxman.

Congratulations to the new government for dropping at least one bit of red tape which would have achieved nothing, just like the unlamented HIPS.

Perhaps Lorna Bourke could get out into the real world more often. She certainly needs a reality check before making ridiculous assertions.

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A jock strap

Jun 21, 2010 at 04:24

Well done CONLID coalition.

More red tape stopped

Much more to go though

I think of LB as L Berk as from time to time she writes inaccurate, based drivel.

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