After a concerted effort by HMRC, a number of these expat landlords are coming forward and admitting they have evaded UK tax whilst living abroad. However, they are facing severe penalties for not disclosing their profits and paying the tax they owe.
"Criminal prosecution may even follow!"
So, far, 248 overseas investors have come forward to admit tax evasion in the 2020/21 tax year. Many are UK expats who live abroad rather than actual foreign investors.
They are disclosing unpaid tax using HMRC's Let Property Campaign. HMRC has been sending out a number of warning letters to individuals it suspects have underpaid tax or paid none at all. They then have 90-days to work out how much they owe and pay it or risk a full investigation.
The number of disclosures by expat landlords fell by 36% during the pandemic, and this is thought to be because tenants have had problems with rental payments, so these landlords are feeling the squeeze themselves. In most cases HMRC is coming across, these are more accidental than deliberate, but HMRC is insisting their tax affairs are brought up to date.
There are a number of other reasons these expats aren't paying the right amount of tax, including:
Offsetting a full repayment mortgage against rental income and underestimating their tax amount
Mistakenly allocating rental income to a spouse with a lower tax rate
Claiming for expenditure on properties that HMRC does not allow
HMRC are getting better at finding landlords who are abroad using global data-sharing tools to grab statements from foreign banks. It also monitors the Tenancy Deposit Scheme quite closely and cross-references this information to individuals.
"You can be penalised up to 100% of the amount HMRC believes you owe it!"
For any expat landlord living out of the country, penalties can be even more extreme with some involving up to 200% of the tax owed. And that's in addition to the tax itself. My advice is to make a voluntary disclosure and pay less in penalties.
Until next time ...
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about tax for expat landlords, click here to get in touch or give me a call on 01908 774323 and let's see how I can help.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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