Tax take from CGT surges by 43%

HMRC steps up investigations into buy-to-let income

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The amount of capital gains tax (CGT) collected by HM Revenue & Customs (HMRC) has surged by 43 per cent in one year, following investigations into people’s tax affairs.

HMRC began targeting buy-to-let investors in 2011 when it launched a taskforce to investigate the tax affairs of landlords. This week it stepped up its investigations, announcing a property sales campaign aimed at making sure people who sell investment properties have paid the correct amount of tax on the proceeds.

“Clamping down on CGT avoidance has been fruitful for HMRC in the past, so it is not a surprise that they are refocusing their efforts on this sort of tax avoidance again this year,” said Roy Maugham, tax partner at UHY Hacker Young, the national accountancy group.

According to data obtained by the group, HMRC enquiries yielded £105.2m from underpaid CGT in the tax year to April 2011 – the most recent data available – up from £73.6m in the year to April 2010.

Maugham said the increase in enquiries could confuse property owners, however, because some sales, such as that of a house that has been someone’s principal private residence (PPR) do not attract CGT.

For a property to be classed as a PPR usually requires the family to have lived there for the majority of the time since the house was bought.

“Disagreements between HMRC and property investors will arise over whether the property is
the primary residence of the owner, rather than a buy-to-let investment property,” said Maugham. He added that HMRC was likely to scrutinise issues such as “enhancement expenditure” that has been carried out to a property, which can be offset against CGT.

“Disagreements may then follow as to whether some of these costs are related to general upkeep of a property or specifically to enhance its value,” said Maugham.

Under the Revenue’s property sales campaign people have until August 9 to reveal unpaid tax to HMRC in return for lenient treatment, with the threat of more severe penalties for those caught subsequently.

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