Income tax HM/customs enquiry

adam1

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I have always paid my taxes via self-assesment when i was sent forms randomly.
However recently i have had a enquiry relating to a property i own.
The property was gifted to me 15 years ago and it was rented out by the person who gifted it to me. However i have now got i letter saying I've not declared my rental income in my self-assessement. i've spoke to the individual who does not want to be identified. I've recently taken over his affairs and I'm submitting returns for this tax year. But for the previous years I have no record to prove he was the landlord or if he even rented the place out. I have during that time not received any income. I'm so worried is this a civil offence or will it be criminal that he committed which i will have to go down for since i have no evidence to prove he was the landlord. I have not slept for the last week and have regular nightmares all bcos as i was so naive and let this happen......
 

Dieselman

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If you have not recieved an income from the property then your bank details should reflect this.
Talk to the IR and explain the situation. I think you will find that they are trying to obtain monies correctly owed to them, not monies that are actually not owed, at least not by you.
 
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Ashley

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don't worry mate even if it goes bad it will not be that bad (they will take it weekly). I know a guy in york who will know a good tax consultant. I've sent my phone number give me a call (I have been active in the FSB for years on just this sort of thing), if nothing else I know we'll get you a good tax consultant in York.

Footnote: When gifting asserts they can not benefit the giftee in any way or the transaction can be reserved. A common one is parents giving a house to children and then continuing to live there rent free, this will always be overturned on the death of the parents. The only way around that is that the parents pay rent to the children. And I am afraid that bank statements will not do a bit of good.

One more bit, do not talk to them until you have advice as you could just keep digging a hole.

Out of curiosity have anyone been declaring the income from the rental? if not get ready for a bill for 15 years plus interest.
 
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adam1

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Thanks Zooman, speaking to legal adviser in the morning. based in west yorks.
Recent rent was £260/month and it has been around 200 since the transfer.
Even with this level the tax bill is 50K plus(tax, penalties, interest). The option is to sell to raise cash but then how do i stand with capital gains at 40%. Seems i will lose cost of house even if i sell at 100K.
 
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Ashley

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It stinks Adam I know. I hope your advice is up to the job, please do me the favor of getting a second opinion regardless of what is said. Go to The Chartered Institute of Taxation not a Chartered Accountant.

I can vouch for this guy http://www.hagyardconsulting.co.uk/home.html, you have my number feel free to call. If you need anyone checking out in trade let me know.

BTW £22k worse worse case.

12 x £200pcm = £2,400pa
£2,400 x 15 years = £36,000

£36k x 40% tax = £14,400 tax due. No NI due. Allow 7k for fines penalties, interest and your costs. Now lets not forget that any allowances that you did not use have to be took into accout and also the interest will be like so

Year 1 2,4k 6% (this rate is set per case)
Year 2 4,8k 6%

etc and that they can not charge interest on interest.
 
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SG CL500

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Adam - I am confused mate - in your first post you said that you've not received any income but have subsequently said you got £200 since the transfer (until recently). Am i being thick?

If you've not been receiving any income then there will be no liability to pay (although the asset will still be subject to inheritance tax if that's what you wanted to avoid as it isn't a transaction without reservation) - if you've been receiving income then it would have been declared (presumably) in your self assessments and therefore the liability paid.

Don't worry about it being a criminal offence - HMCR would have to prove fraud for that and that's really rare (and you'd know full well if you'd been doing anything that would attract that level of intererest - i.e. it would have been with intent).

As Zooman says - get advice - both about the liability and the capital gains. There are a number of reliefs available to you should you sell - i.e lettings relief, annual exemption etc. We are selling a rental property we have owned for 12ish years and have no chargeable gain on the property despite it >tripling in price (we used to live there and have been abroad through work) but you need help with the allowances.
 
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Ashley

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Just thought this may be of interest.

You only need to keep records for six years, EVERY April I destroy all old records and I keep NOTHING that is not legally required and I destroy unneeded paperwork WITHOUT delay.

The six year Statute of Limitations will not apply here. But your record keeping responsabilites only go back 6 years.
 

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I think you may find that what you have is a gift with reservation of benefit. If someone gifted the property to you in the expectation of eliminating an Inheritance Tax exposure but kept the rental income, it could well have been an ineffective transfer and is still part of their estate.

Just because you own the property does not mean the rights to rental income (and tax on them) are always yours but HMRC will simply stop at you unless you lay the story out and can show who actually had benefit of the rents.

Yes, you have to keep records for 6 years but it is not safe to assume that you have nothing to worry about beyond that point in terms of the burden of proof. Once HMRC raises a bunch of estimated asessments going back x years it is up to you to disprove them at which point having no records is a liabilty, not an asset.

Tax is one thing but in this sort of case interest on the overdue tax is always charged, It can add up to a very considerable amount over time.

If they charge Penalties these will be mitigated down by cooperation but the general circumstances count for a lot. Would be doing very well indeed to get it down to 20%.

Whatever you do, never make false statements and never sign a certificate of full disclosure unless you are quite sure that everything has been fully and correctly disclosed.

Take advice and hide nothing from your adviser.
 
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adam1

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Thanks for all your advice and helpful comments.
When i say about the 200/month rent , although I had been named as the landlord from a certain date i still did not receive the income. However it would be impossible for me to get out not being the person receiving the income for this period since i'm the owner and landlord from this point.

The tax office has requested an enquiry on rental property does this mean they can order a FULL investigation or will it be closed as an Aspect enquiry.

I will have to sell the property, i do not have enough funds to pay....I've sold the car(MERC)and various items already..it is not a situation one wants to be in...but i have to deal with it. I had always thought it was his responsibility and had made him aware of the tax. However he is not providing me with anything(documents) to prove he was the landlord for the majority period.

The gift transfer was not parental it was sibling...who does one trust these days.
 
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Ashley

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adam1 said:
The tax office has requested an enquiry on rental property does this mean they can order a FULL investigation or will it be closed as an Aspect enquiry.
They can do what they feel fit, it all depends on what they think they can get out of you.
adam1 said:
However it would be impossible for me to get out not being the person receiving the income for this period since i'm the owner and landlord from this point.
adam1 said:
I had always thought it was his responsibility and had made him aware of the tax. However he is not providing me with anything(documents) to prove he was the landlord for the majority period.
I think this is how far you want to drop him in the shit, I would be very surprised if a investigation (a solicitor can arrange this)funded by you could not prove this and then sue him for the costs of the investigation. I feel that a district judge would lean towards you if he is being uncooperative.
 

Satch

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You must assume they will have a general poke around in your affairs and not deal with this as single issue. HMRC deal with this sort of thing on a very regular basis and have procedures. They will be wanting to see if there anything else that should have been returned.

There are limited things you can do with money: spend it, save it or turn it into another form of asset. So the general thrust will be to determine if your lifestyle and accumulated net asset base can be reasonably accounted for by your income (declared or undeclared) to date.

And you may want to consider everything in the context of the position of the person who gifted the property as well as your own. The gift in itself may have been an event chargeable to Capital Gains Tax on the donor especially as you are connected parties.

Take advice.
 

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Hmm.

I had the revenue catch up with me after missing 5 years of tax returns (I'd moved and had never had a return before - they hadn't updated their records). They first hit me with loads of fines and demands. I responded immediately with a full apology (counts for nothing but politeness costs nothing), and stated my course of actions. This was immediately followed up with a letter from an appointed tax advisor confirming same, and advising of status as acting agent.

The advisor in question was also ex VAT inspector, ex Inland Revenue - so she knew the system and what to do. 4 weeks later we presented all tax returns, all records to support, and claimed back the fines and tax owed.

They questioned some bits, and asked for more proof on others, but basically because we'd acknowledged the issue, and dealt with it, they seemed to be reasonably happy that we hadn't avoided it.

Key points:

1; Don't act on your own - seek advice.

2; Don't act before seeking advice.

3; Disclose everything to your AGENT. They should advise what response you should make. I am not a tax expert, but I pay someone else to worry about it for me. Sure, I'm ultimately liable, but I pay them an insurance premium for their brain (and I can sue if they are wrong). Your agent can also be there for inland revenue interviews, which aren't so bad.

Good luck - but do NOT make panic decisions. I worried - phoned a friend (so millionaire sorry!) and found a good advisor. I ended up saving a lot, instead of owing a lot more.
 

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