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Property has become a popular investment as house price soared and interest rates remained low over recent years. HMRC have recently announced that they believe that many property owners are not declaring capital gains or rental income correctly. Any understated liability can be brought to HMRC’s attention before 22nd June 2007 with a guaranteed penalty of just 10%.

Soaring property prices and low interest rates have created a boom in private investors buying property at home and abroad. Many properties are rented out, others are used for second homes. Cheap flights to all parts of Europe have helped to fuel demand.

All of this activity has inevitably attracted the attention of HMRC. Statistics suggest that there are over 400,000 buy to let landlords in the UK, and HMRC estimates suggest that 20% of these are getting their tax returns wrong. Some are claiming too much interest on mortgage payments, others are understating rental income, or simply not registering at all with HMRC. HMRC are launching a campaign to target this sector, initially by sending out leaflets setting out their view of the correct position.

Potentially more rewarding for HMRC are investors who are considering liquidating their investment, now that interest rates are rising and margins becoming tighter. Property prices have risen steeply over the last five years, and estimates suggest that the capital gains tax due on buy to let properties would be £4.1 billion if they were sold now. Many taxpayers think that principal private residence relief applies to all sales. The tax rules on property sales are complicated and specialist advice can reduce bills substantially.

Landlords with tax to pay still have the opportunity to use the HMRC Offshore Disclosure Facility or the parallel onshore scheme to come clean, but this window is only open until 22nd June 2007. Anybody who fails to meet that deadline should still consider approaching HMRC. Adopting a wait and see approach is very likely to result in detection and very severe penalties, as HMRC continue to collect information electronically from Land Registry and Stamp Duty Offices and checking the information against tax returns.

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