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Buy to let landlords may have tax problems

[ Posted April 11th, 2012 ]

While those with money are complaining about how millionaires may be affected by Stamp Duty, it appears they may be bigger problems in store for those who took advantage of the best mortgage rates while they were available, because many accountants are now claiming that landlords are sitting on a potential ‘tax timebomb.’

The reason for this is that over the next six months landlords are going to become liable for two years’ worth of taxes and in many cases the income that they received from their properties may not be enough to cover the middle. This is due to the fact that the tax law surrounding buy to let landlords is a bit complex, while the ability to take advantage of the buy to let mortgage rates when possible was easy for those with a bit put away in the bank.

Therefore, the situation created was that those with enough equity or a bit of savings decided to jump into the rental market to take advantage of the new investment opportunity, but without proper knowledge of what they would have to pay in the future. Many of these new landlords are not millionaires or savvy investors, but lack of knowledge is not going to help them out when HM Revenue & Customs comes knocking on the door.

UHY Hacker Young partner, Geoff Davies, stated that a great deal of buy to let landlords that took advantage of the low buy to let mortgage rates and new ‘renters’ economy allowing them to profit for the tax year that ended this April. This means that the landlords could have to pay on their new profits that were earned over the last two year period, and will only have six months in which to do so.

Essentially, being of the timing of when the rates were cut and the timing of when landlords started to actually profit, most landlords are going to end up getting taxed just as they start to break even. The timing is incredibly inconvenient, but then HMRC is not really going to care about that factor since they will want their money when they want it.

As a result, landlords have better start preparing now for the heavy taxes they may find themselves slammed with very quickly otherwise they could lose what they thought they had gained.

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