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Buy-to-let brokers urged to settle tax bill confusion

Landlords could face hefty bills unless they take the right advice

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Buy-to-let brokers have been urged to cut through the confusion surrounding landlord taxation as many investors face inflated tax bills.

Industry experts say many landlords and their accountants are confused about the rules around the annual tax on enveloped dwellings.

ATED is a tax on residential properties worth more than £500,000 that are owned through companies and investment vehicles. It was introduced in 2013 to tackle homeowners who were trying to avoid stamp duty and capital gains tax by owning homes through companies.

The Buy to Let Business managing director Ying Tan says accountants have been wrongly telling some residential landlords they need to pay ATED.

The tax applied originally to properties worth more than £2m, but the figure was reduced to £1m in April 2015 and again to £500,000 last April.

Buy-to-let landlords of properties worth £500,000 or more owned through limited companies are exempt from the tax, but must still fill in ATED tax returns every year.

But Tan says some accountants are not up to speed with changes to the tax and are telling landlords they have to pay ATED if their property is worth more than £500,000 and is let through a limited company.

He says: “It is difficult to quantify how many landlords are affected. We have certainly seen some landlords, off the back of speaking to an accountant, say that a limited company is not a good option due to ATED, even though ATED would not apply to them.

“This is contradicting other accountants who are acutely aware that, if the property is let out, ATED does not apply.”

Mortgages for Business chief executive David Whittaker says: “Don’t get me wrong, we all make mistakes. But, at a time when the buy-to-let industry is going through massive change, it is vital that all types of intermediary and adviser keep up to date with developments that directly affect their landlord clients.

“For landlords, this means getting the right tax advice first time because getting it wrong could mean the difference between success or failure.”

The ATED tax is £3,500 for every property worth between £500,000 and £1m, and £7,050 on dwellings between £1m and £2m.

The need for advice

Paragon Mortgages managing director John Heron says the tax can also trip up landlords in another way – if they do not file their annual ATED tax return at all.

He says landlords face a penalty of up to £1,300 per property a year if they file late or do not file at all.

He says: “The return for the period 1 April 2016 to 31 March 2017 had to be filed by 30 April 2016, or 30 days after the property was acquired if later.

“A return that is over six months late is liable for penalties of up to £1,300 per property per year unless the company can show it has a reasonable excuse. Tax tribunals have consistently held that merely not knowing of a tax obligation is not enough to form a reasonable excuse.

“A professional adviser will be able to advise whether anyone who has not yet filed a return has a reasonable excuse, and therefore anyone who believes that they might be caught be this provision should seek professional advice immediately.”

Chadney Bulgin mortgage partner Jonathan Clark says: “The increasingly complex tax rules surrounding buy-to-let appear to be confusing both landlords and their accountants, with advice being somewhat inconsistent as a result.

“For me, this has echoes of the SDLT changes on second properties that resulted in solicitors charging the additional 3 per cent on some transactions when they were finding it difficult to determine whether it was in fact justified.”

The issue is likely to be compounded as buy-to-let landlords increasingly favour limited company structures.

Mortgages for Business research in April showed that 77 per cent of all buy-to-let purchase applications in Q1 2017 had been made through limited companies. The firm says limited companies made up 30 per cent of remortgage completions in Q1, up from 15 per cent in Q4.

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