The London Borough of Newham has suggested that its research has shown that half of all its buy-to-let landlords were not registered for self assessment with HMRC when it introduced a regulatory regime for its landlords. Their estimate is that maybe £200 million of tax is not being paid in London alone as a result of the failure of landlords to register to declare tax that they owe.
OK, that’s interesting:
Up to 13,000 landlords in just one London borough have been identified as failing to declare their rental income, prompting estimates that unpaid tax in the capital is costing the public purse nearly £200m.
Newham council in east London, the first to introduce a compulsory borough-wide licensing scheme for landlords in 2013, shared their names and property addresses with HM Revenue & Customs. Newham, which has 27,000 registered landlords, said it understands that 13,000 had not registered for self-assessment, which is generally required if a property owner receives £2,500 a year or more in rent. HMRC would not confirm the figure.
No, you don’t have to register if you receive more than £2,500 in rent. You must register if you receive more than £10,000 in rent. Or, more than £2,500 after allowable expenses. That’s after maintenance, and or depreciation, and until recently at least, after mortgage interest.
Ritchie then charges off to talk about gross rental income, entirely ignoring this basic point.
Third, to add a little more context, based on a number of sources, including data from HMRC and letting agencies, I estimated that maybe £3.2 billion of rent was undeclared for tax purposes in 2011. This was about ten per cent of the total rental market at the time, which implied a vastly higher compliance rate than Newham has now found. If the Newham rate was extrapolated at national average rents the undeclared rents would be £13 billion. This, I stress, does not mean tax is lost on that whole sum as costs can be offset even against undeclared income, but it does, rather worryingly suggest that I have been seriously underestimating tax gaps.
He even mentions costs against income without grasping that you only have to register if your net, not gross, income exceeds £2,500.
So, more of the usual absurd twattery there. It gets worse of course:
Third, the loss, which may when extrapolated across 32 London boroughs, be about £480 a property, seems very unlikely indeed to take into consideration unpaid capital gains tax. Much of the return from buy-to-let is made in this way. In 2011 I estimated that about twenty one per cent of all privately owned UK housing stock was in the buy-to-let sector, suggesting that the same proportion of sale transactions in this sector at that time were also likely to relate to such properties. Since gains were commonplace at the time this might have suggested almost 200,000 gains on such property should have arisen that year. In fact only 52,000 property sales were declared for CGT purposes. I accept, of course, that some properties may have been sold at a loss and others might have realised non-chargeable gains, but candidly I think this was a decided minority of gains.
The portion of buy to let is expanding in the housing supply. Which does indeed mean that more are buying than selling, so we can’t get to the number of sales by looking at the average of holdings. That’s not even accounting, that’s just statistics.