I’ve covered the allocation of income before here and also the importance of getting the right help with your taxes. I might not have mentioned I’ve been giving tax advice for over 30 years. I have an as you would imagine I’ve seen a lot. I mean, A LOT!
I have never seen anything like the situation I was presented with last week however. A portfolio of approx 40 properties all held in the name of a single person. Nothing unusual so far.
Tax return however shows only ten properties. At this point I am stroking my chin. When I ask what happens to the other income it turns out that three other people are busy declaring the rent on those properties. I ask for details on the basis on which it is being done. Unsurprisingly the only answer is so that all involved can keep their personal allowances.
The person involved got their tax return a few years back and was shocked at the rate of tax on the rental profits so asked their accountant (I will use the term they used to describe them – I cannot believe for a second the advisor is remotely an accountant mind!) who just said there was no problem and they could move some rent to someone else. It happened again as the portfolio grew and someone else was drafted in. Finally we have three other people now all declaring rental income that is legally and beneficially that of the actual owner.
Now you might think there is no problem as tax is being paid by everyone. The problem is the rate of tax. Instead of up to 45% tax being paid only 20% is being paid. Across the four individuals this is a huge figure.
I advised the person involved they have two options:
1 – Come clean with HMRC and put everything right. Pay the tax, interest and penalties.
2 – Wait for HMRC to put it right and pay the tax, interest and significantly higher penalties.
You will note that none of the options were – keep your head down! There is literally no way that HMRC will not pick this up and get this money in at some point. Again regularly readers will have seen how easily it would be for HMRC to do so. I would not be surprised if there was already a list of people just like this that HMRC will be setting their new compliance officers on.
HMRC land registry shows the ownership of the portfolio in black and white. The rental income being shown on the portfolio works out at something like £200 a property per month in rental. I know property is cheap up here in the North but that sticks out pretty easily. You don’t need to apply much critical thought at all to see there is something dramatically wrong.
What I particularly confusing here is that it seems to have been suggested and carried out by the “accountant”. Yes, the one that is probably going to get struck off when this comes out. That is if they are even on a register in the first place.
I know that tax is not on anybodies list of favourite things but with the right advice and regular planning it is possible to at least manage the liabilities. Obvious fraud and head burying is simply not going to cut it in an every more digital world.