Tax Man in Hot Pursuit of Landlords – guest blog by Roberta Ward of My Property Mentor

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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This post first appeared on Roberta’s excellent My Property Mentor Blog on 19 October 2009.

You may not be aware of this- I certainly was not-but HMRC are actively searching for landlords who are avoiding paying tax either by accident or by design.

HMRC is actively searching local newspapers for information on planning applications for flat conversions.

If the planning application was for a number of flats within one house they will try to find out if the landlord was filing a tax return. (Sneaky!) They are checking for a ‘UTR’- Unique Taxpayer’s Reference. This 10 digit number is ta way for them to start the chase up. It allows them to see if the taxpayer was declaring the letting income. If you are then you would be entered on the “Not Worth Further Pursuit” database.

However…..
If you are Self Assessment registered and not declaring the income, the fun begins. They will send a 116 form, requesting information from the District Valuer, this tells them how much the landlord paid for the property, date of purchase and from whom the landlord purchased it. ( eeek!)

The next step is for them to check Experian to seek any further linked addresses to your name. If so, they will send more 116s, and see if more properties were not declared. More often than not, this yields spectacular results for the HMRC.

So, what if they are unsuccessful? Well, they may ask the District Valuer for a ‘Covosearch’, a historical list of properties, bought by the landlord, or possibly members of the landlord’s family friends and associates. If by chance the family member is a minor, they will suspect the landlord of attempting to limit his tax liability, and that non-compliance was taking place. (You have been warned!)

Further Enquiries
Now, if they decide that you are part of non-compliance, your case would be then be subject to a full enquiry. On the other side of the coin, if you are not on Self Assessment, you would be referred to the ‘Hidden Economy Team’, where you would be requested to complete returns with the letting income included. OK, hands up those who knew just how much power the HMRC have to chase you? How many investors have been advised by greedy marketeers and brokers into setting up sizeable portfolios in their family members/ kids/ friends names to avoid the many forms of tax?

Other Ways They Can Chase You
Apart from the local newspaper, another source of locating non-compliant landlords is via a Gangmasters’ project of licensed labour providers, which may have offshoots of properties owned in which a vast amounts of tenants were placed in just one room. (When we had a large influx of EU members there were stories of Polish workers living cheek by jowl in this manner.) Usually a family member would be acting as the landlord, leaving the Gangmaster to exploit the workforce.

Yet another way of locating non-compliant landlords is to establish (via the London Information System (LIS) database) how much housing benefit was paid to a landlord by a local council for the tenants. Local councils are duty-bound to place this information on the LIS database for HMRC.

Last but not least, they can also find, via LIS, rental income submitted to HMRC from letting agents. (Ed: they may also be able to track you via the tenancy deposit schemes which pass information on to the government)

Get Your Tax Sorted-NOW!
This government is very strapped for cash and in my opinion we can expect more of this type of behavior. We know already that banks are employing forensic accountants more and more now too (see my recent blog here for more info). The situation is likely to get worse as the government search more actively for spare cash trapped in the system. The tax man is coming folks- you have been warned. Sort your stuff out sooner rather than later.

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If you need help, Roberta's service may be able to assist. You can email her via her main website http://mypropertymentor.co.uk.

4 Ways To Catch A Rental Scammer - guest blog by Dave Dugdale

Note - the Landlord Law Blog has now moved to www.landlordlawblog.co.uk.

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I run a couple of classified rental sites in America, and while I do not live in England I know from monitoring Twitters search stream on rental scams, that America is not alone when it comes to dealing with rental scammers.

It feels like an on-slot of scammers have been using my sites to create bogus listings the past 10 months. They try to cheat future tenants out of their deposit money. I have been combating them for the past 6 months and I have learned a lot about how they operate.

I thought I would share with Tessas readers how I track down fraudulent rental listings.

Price Is Way Too Low:
If I see a rental listing come in that looks much lower than the others in the neighborhood, that is when my eyebrows go up and I pull up my chair for a closer look. Scammers are impatient, and with a low price they can get leads quickly.

Free Email Address:
The next step is to see if they are using a free email address like Yahoo, Gmail, Hotmail etc. Scammers only use free email services they can hide behind.

No Phone Number:
Most of the time the scammers will not list a phone number to call; they will only want to communicate by email. Most legitimate rental listings include a phone number. If none is listed, I look even further.

Exterior Photo Does Not Match Google Street View:
Google traversed American streets a few years back, getting a full street-viewto accompany their maps. I understand that Google has now started this project in England. This becomes a powerful tool for detecting scammers because many times they do not use the photos from the real house, so you can check the listing photos against Google Street View.

Duplicate Content Found On Another Listing:
Most of the scammers I deal with are from Nigeria. They want to blend in with the other listings so instead of writing the description of the rental themselves, they copy it from other rental ads. So, I Google paragraphs of the content to see if I can find a match with different pictures, address or price. This is a sure sign of a scam.

In conclusion
A good rule to follow to avoid becoming a victim in one of these scams is to deal with the owner of the property directly. When renting homes, meeting the property owner at the property is always a good practice. This helps you verify independently whether the offer is bogus or not.

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Bio: Dave Dugdale has been in the online rental advertising business for 5
years with his sites RentVine.com and PickRent.com. He was the first to write a blog on the rental ad industry, and the first to podcast interviews of industry experts in property management (all for a USA audience). Dave has also been leading the way in better detection of rental scams by sharing his database of blacklist email addresses with competitors.

Twist Stick or Bust? How Landlords should to deal in the Rented Property Market Summer 2009 - by guest author Paul Hajek

Much has been written about the state of the Housing Market in England and Wales during 2009.

Over the last few weeks data that has been released has edged towards the positive. Although some opinion is predicting that further falls are inevitable, more commentators such as the Nationwide Building Society and the RICS are predicting an end to the fall in prices, and even a slight rise by the end of the year.

How have Landlords fared in all this uncertainty and what are the prospects for Landlords for the rest of summer 2009?

Landlords have certainly not been immune to the falls in the Housing Market. As confidence and turnover fell in the Housing Market, so then as a direct result we have seen an oversupply of rented properties, leading to a reduction in rents achieved.

We have heard tell of a swelling in the numbers of Landlords, the so called new breeds such as the distressed Landlord; the reluctant Landlord and the accidental Landlord. These Landlords i.e. those who did not want to sell in a failing market now sit alongside the more traditional investors and professional Landlords.

What then are the Prospects for the rented property sector?

Clearly, the love affair that the British enjoy with property shows no sign of diminishing. A recent Mintel Poll in the Sunday Times showed that 33% of adults believe now is a good time to invest in property and more than 50% say property is still a good long term investment, despite the recent crash.

It is suggested that large institutional investors are now looking towards the rented sector where they can now see an improvement in the potential yields available, rising on average from 4% to 6%.

The RICS has also indicated that as property transactions begin to rise from their very low levels, the influx into the rental market has slowed as the market reaches equilibrium with supply able to match demand.

The Young Group, a leading Property Investment Group, carries out a quarterly survey of investor market sentiment. Their 2nd quarter report contains upbeat news. 52% of investors are considering purchasing additional residential property assets within London during the next 12 months, compared to 30% who are looking at opportunities in the UK outside of the capital.

Sentiment among Investors remained strong and that 99% of investors intend to hold their residential property investments for the next 12 months. 41% intend to hold their assets for at least 10 years and 12% of private residential property investors intend to retain their property investments for the next 20 years or more.

On average, residential property investors expect to hold their investment assets for the next 10 years.

What are the barriers to improvement in the rented property sector?

The oversupply of rented properties in certain areas will not abate for some considerable time, and this will continue to exert downward pressure on rentals achieved. This is particularly the case with two bedroomed flats in urban areas.
Even where more saleable houses are involved, the market is unlikely to see rises sufficient to tempt the reluctant, distressed or accidental Landlord to cash in on their investments. Some Landlords may well have favourable tracker or low fixed interest rate mortgage and are well placed to ride out the storm.

The shortage of mortgage finance will also be a barrier to Landlords. Mortgage approvals, for which part will be investors looking to add to their rental portfolios, were again up visibly but the shortage in funding is evident in the number of buy to let mortgages declining according to moneysupermarket .com from 4690 to 177 in the last 2 years. Of those mortgages that are available at the time of writing, the Nationwide has a buy to let mortgage at 3.69% but with conditions, and a whopping 3.5% arrangement fee.

Unemployment has not yet bottomed out, and there may be more people forced to sell their properties, further dampening the prospects for a rise in rental income.

TWIST, STICK OR BUST THEN?

It may be dangerous to give too broad a conclusion. Certain parts of the country will be faring better than others. Locally, here in Bristol and South Gloucestershire the outlook for rents are good. Local estate Agents and Letting Agents are reporting that properties coming on the market to rent are letting relatively quickly. Rents have held strong and there is no evidence of a decline in rents achieved.

As ever, events may still derail any nascent stability. Unemployment may lead to lower, reduced prices and plentiful tenants taking the opportunity to buy rather than rent. Mortgages are still are hard to come by.

The Rental Index from the property portal FindaProperty.com published last weekstates that the UK rental market is stabilising. Although the supply of rental properties doubled between May 2008 to May 2009, stock levels have now declined for two consecutive months. This may be an early indication that the chronic over supply might be at an end.

Rents fell sharply during the period by an average 5.5% or £48 per calendar month. Since then, their Rental Index has shown a small increase of £6 pcm.

The low level of first time buyer activity continues to contribute to demand in the private rented sector.

If you are one of the distressed, reluctant or accidental landlords, who wish to get out of the market, there may be better news than of late. The sentiment, that the bottom of the market is near has been reached means now could be a good opportunity. Although it is still obvious that, if you bought within the last 2-3 years, you will almost certainly be unable to realise as much or any profit from selling now.

For most landlords who are successfully renting (albeit at perhaps less than their last rental), provided their gearing is manageable, they will be well able to ride out the storm and await a more obvious recovery.

For the continuing landlord investors with cash in hand or large deposits, there are bargains to be had, although they may have already missed the best bargains.

For traditional landlords the outlook is still positive and unlikely to force or change their outlook.

It may not be radical to suggest, but the best advice may be to “stick”.

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About the Author: Paul Hajek. Is a Solicitor and Principal of Clutton Cox, Solicitors, Chipping Sodbury and a Director of ActionMove, a leading Home Information Pack (HIP) Provider. Paul Hajek has over 25 years experience of the Conveyancing and Estate Agency market, and blogs regularly on his website. He can be contacted on 0844 372 3011; Paul at cluttoncox.co.uk or via his website www.cluttoncox.co.uk