Hidden wealth
Don’t fall foul of the rules!

Accountants estimate that there could currently be as many as 1m people who have undeclared tax bills. Given that HM Revenue & Customs (HMRC) can reclaim up to six years' unpaid tax as well as being able to impose penalties and interest charges, this could mean some hefty tax bills for many individuals.

The areas that are coming under the close scrutiny of HMRC range from the amateur buy-to-let landlord to the online auction trader.

Amateur landlords
Anyone letting a property has to pay tax on the rental income, although you can offset interest you pay on the mortgage as well as some maintenance costs. However, some amateur landlords are simply offsetting their total monthly mortgage payments, which could include some repayment of the original loan, and as a result are under-paying the tax due.

HMRC are also chasing tax due from short-term lets and are aware that many people rent their homes for short periods of time. This rental should be entered on an individual’s self-assessment form as additional income and will be taxed at their marginal rate, although again it will be possible to reduce the tax owed by offsetting certain costs, such as mortgage interest paid during the period the property is let.

Offshore investors
This is one of the key areas where the Treasury has made moves to ensure that fewer people evade tax. They now have the authority to force banks to hand over details of UK residents with offshore accounts. Armed with this information, HMRC can cross-check how many people have declared these savings on their self-assessment form.

Inheritance tax (IHT)
The Treasury are concerned about the rise in the number of people looking to artificially reduce the value of their estates to minimise their overall IHT liability or to evade it altogether. As a result, the rules have been tightened on IHT and a number of loopholes closed.

At the same time, HMRC are becoming more vigilant in checking the value of estates. HMRC will, for example, check the value of goods insured under the household insurance policy and compare them against the furniture, paintings and chattels listed in an estate. HMRC are now far more likely to investigate such apparent discrepancies.

Online auction trading
Online auction sites have provided a revolution in the way many people buy and sell goods. But it is also causing concern at HMRC that many smaller traders are not paying tax on these profits. They have made it clear that they are looking at these sites and monitoring their 'premier' traders. HMRC have even developed specialist software to help target and catch these individuals.
Traders should register their activities within three months of starting to trade, or face a £100 penalty and interest charges on unpaid tax. They also need to pay income tax, National Insurance and, depending on their earnings, VAT, and it is their responsibility to tell HMRC.

The rules apply to all sole traders, whether they use the internet or not, but with the growing popularity of these sites, HMRC are targeting those individuals buying and selling online.

However, HMRC have said that people making the odd trade online to get rid of unwanted Christmas presents or personal possessions will not be caught by these rules. But those buying and selling goods regularly or making goods to sell online should be aware of their tax liabilities.

If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

Levels and bases of, and reliefs from, taxation are subject to change.
Article date: 08.07