Worried and Confused!

[Silvia28]

Help! I bought my house in 1995 with a residential mortgage. After 3.5 years I moved out to husband's house, changing my mortgage to a buy to let for 4 years. I then moved back in and is now my home residence, again The problem is that I never informed the IR.....silly me.. I left all to my ex-husband to sort out and hey presto..the IR has just written to him to ask about my house. Why worried? because I no longer have all the documents for the lettings and I am lost with all the jargon and talk about fines. Apart from writting a letter of apology and explanation to the IR what else can I do?

[plym77]

Hi

I am sorry to hear of your dilema - it is unfortunate that this has happened when I expect you thought it was all taken care of.

A letter of apology will unfortunately not do a whole lot.

Income Tax:

I expect you will need to complete tax returns for the period it was let, which should be 4 or 5 years. The tax returns will cover all income, not just your rental profits, so salary, bank interest, dividends etc. So you will need to locate or request this info too.

You will need to put together the best information you can - you should know how much rent you received, plus you can look back at the bank statements for mortgage interest amounts. If the property was furnished then you can claim wear and tear allowance. I have created a fact sheet on residential lettings detailing the types of expenses you can claim etc. If you would like a copy, email me on sherena.glanton@horwath.co.uk and I shall send it to you by PDF file.

You should do this as soon as possible as unfortunately interest will be accruing on any tax outstanding.

was the property in joint names? if so, you are only responsible for half.

And... this is a word of warning to anybody out there who is renting on the quiet.... HMRC can catch up with you! I have said this before... it just aint worth it. Unfortunately in your case Silvia you weren't to know.

It is of course entirely up to you, but I would suggest that you employ an accountant to deal with this for you. This could be quite daunting and an accountant will know what you can claim, what you cant, and may have some manouvre in negotiating payment of tax if you cant afford to pay it all at once. Should you require an accountant, I can offer competative rates. It may be a false economy to prepare the return yourself - that may sound bias, but from experience landlords often believe they are doing and claiming everything they can until an accountant reviews it for them!

If you decide to do it yourself - do not just hand everything to HMRC to sort for you! Very possible they would come back with a higher tax bill than an accountant would as they are working in favour of collecting tax! and are therefore much more black and white and will not think outside the box when it comes to expenses etc. It may not be as bad as you think though as mortgage interest (particularly in the earlier years of a mortgage) could wipe out a large part of the income.

Capital Gains Tax:

There are a number of reliefs that will be available to you, PPR Relief, Lettings Relief, Indexation and Taper Relief, as well as your CGT Annual Exemption (as long as it is not used elsewhere). On selling the property you will need to calculate the CGT position. It is possible that with the reliefs available that CGT may not be payable as yet. If you would like the situation reviewed, please do contact me - I can calculate what the position would be at the moment, together with an estimate of if and when CGT would become payable, if you continued to own the house - which would give you a better idea of the tax position - and possible mitigation of tax (which is more difficult to do if the property is sold before advice is sought!)

I hope this helps, and if I do not hear from you, best of luck with the tax office

Regards

Sherena

[Silvia28]

Hi

I am sorry to hear of your dilema - it is unfortunate that this has happened when I expect you thought it was all taken care of.

A letter of apology will unfortunately not do a whole lot.

Income Tax:

I expect you will need to complete tax returns for the period it was let, which should be 4 or 5 years. The tax returns will cover all income, not just your rental profits, so salary, bank interest, dividends etc. So you will need to locate or request this info too.

You will need to put together the best information you can - you should know how much rent you received, plus you can look back at the bank statements for mortgage interest amounts. If the property was furnished then you can claim wear and tear allowance. I have created a fact sheet on residential lettings detailing the types of expenses you can claim etc. If you would like a copy, email me on sherena.glanton@horwath.co.uk and I shall send it to you by PDF file.

You should do this as soon as possible as unfortunately interest will be accruing on any tax outstanding.

was the property in joint names? if so, you are only responsible for half.

And... this is a word of warning to anybody out there who is renting on the quiet.... HMRC can catch up with you! I have said this before... it just aint worth it. Unfortunately in your case Silvia you weren't to know.

It is of course entirely up to you, but I would suggest that you employ an accountant to deal with this for you. This could be quite daunting and an accountant will know what you can claim, what you cant, and may have some manouvre in negotiating payment of tax if you cant afford to pay it all at once. Should you require an accountant, I can offer competative rates. It may be a false economy to prepare the return yourself - that may sound bias, but from experience landlords often believe they are doing and claiming everything they can until an accountant reviews it for them!

If you decide to do it yourself - do not just hand everything to HMRC to sort for you! Very possible they would come back with a higher tax bill than an accountant would as they are working in favour of collecting tax! and are therefore much more black and white and will not think outside the box when it comes to expenses etc. It may not be as bad as you think though as mortgage interest (particularly in the earlier years of a mortgage) could wipe out a large part of the income.

Capital Gains Tax:

There are a number of reliefs that will be available to you, PPR Relief, Lettings Relief, Indexation and Taper Relief, as well as your CGT Annual Exemption (as long as it is not used elsewhere). On selling the property you will need to calculate the CGT position. It is possible that with the reliefs available that CGT may not be payable as yet. If you would like the situation reviewed, please do contact me - I can calculate what the position would be at the moment, together with an estimate of if and when CGT would become payable, if you continued to own the house - which would give you a better idea of the tax position - and possible mitigation of tax (which is more difficult to do if the property is sold before advice is sought!)

I hope this helps, and if I do not hear from you, best of luck with the tax office

Regards

Sherena

[Silvia28]

Thanks,

After feeling sorry for mycelia for being so trusting and naive. Your reply has clarified a few more points for me. Will an account be able to help me even if I can not provide records for all the years I rented the house for? I called my bank and they can only provide me record for the last six years therefore I have a gap of 2.5 years that I can not account for. My dates are a bit muddled up and my ex- is not much help!

FOR ANYONE OF YOU OUT THERE WHO HAS NOT DECLARED TO THE IR: I AM A TYPICAL EXAMPLE OF WHAT CAN HAPPEN TO YOU.

As Sherena said, it is not worth the worry, crying and sleepless nights!!!!