BTL investors are being targeted by HMRC over undeclared rental income…

HM Revenue & Customs (HMRC) is targeting people who receive income from UK property in a bid to chase non-payment of tax. Its compliance unit is writing to 500 self-assessment taxpayers who they believe are receiving income from rental properties -- but are not declaring it.

It is expected to be the first move to clamp down on unpaid taxes on buy-to-let properties.

John Cassidy, tax investigations partner at chartered accountant PKF, noted: "Over the last few years, HMRC has geared itself towards tackling tax evasion and avoidance and it intends to use the information it has to seek out evaders in a systematic fashion across the board.

"Those who believe they may have escaped the Revenue's grasp should note that this is only a pilot exercise for ongoing interventions that will start later this year."

New campaign

The campaign is the latest in a string of moves designed to avoid lengthy, traditional tax investigations. Last summer the taxman wrote to 200,000 people urging them to come clean over any unpaid taxes on offshore accounts. 

That came little over a week before the deadline of a tax "amnesty", allowing people with offshore accounts and overseas property to disclose income and gains not previously put on their tax returns -- without being hit by hefty penalties.

Now it is using government data, including stamp duty receipts, to pinpoint individuals who might be letting properties, but are not declaring rental income on their self assessment tax returns.

"Occasionally there will be legitimate reasons why tax has not been declared," says Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants.

"In some cases, letting out property does not raise much income, and people may feel they are not making a profit which needs to be declared.

Confusing laws to blame?

He added "But tax rules for renting out property are confusing. The amount of tax payable depends on the type of letting -- even letting all or part of a property can be taxed, usually the net profit received."

John Cassidy concluded: "While HMRC cannot be certain these individuals have made profits and there is no legal requirement to respond to such letters, though ignoring such a letter may be counter-productive".

"Once HMRC has identified a tax risk, it is unlikely to let go until the issue is cleared up."