An economics academic says the country’s taxpayers should be “very angry” with the government for failing to collect taxes to which they are entitled from the buy to let sector.
Richard Murphy - a professor who works primarily at City, University of London - says although an exact figure is perhaps impossible to calculate, he nonetheless believes losses in undeclared tax from the buy to let sector could be £1 billion pounds per year.
Murphy’s analysis begins with figures from Newham council in London, which says that its research reveals half of the buy to let landlords within its borough boundaries are not registered for self assessment with HM Revenue and Customs.
“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. This compares with HMRC’s suggestion that they may lose £550 million of tax a year in this way across the country as a whole” writes Murphy on his blog.
He factors in the possibility that returns from letting in London are higher than in the rest of the UK, but he says extrapolating from Newham data makes him believe that “losses could very easily considerably exceed £1 billion.”
He also says the loss of tax payable on rental income - which could, he claims, be £480 per property per year - is unlikely to include unpaid capital gains tax.
Murphy says that figures from a previous study he made in 2011, suggest that some 200,000 buy to let properties were sold in that year; however, only 52,000 sales were declared for CGT purposes that year.
“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. I estimated that maybe half of all gains were not disclosed as a result, a ratio remarkably similar to the non-disclosure rate Newham suggest exists. I did not attribute a loss to this sector in isolation: if I had it might have exceeded £1 billion” he writes.
Murphy’s criticism is reserved for the government, which he says refuses to recognise the scale of missing tax. His solution is to put another financial charge on landlords: “If all landlords had to be registered with HMRC, much of the problem would be resolved, and landlords could be made to pay the cost. If only HMRC checked all property transactions for potential gains disclosure (which would not be hard; they are subject to stamp duty or its equivalent in most cases, after all) much of the rest would go away.”
His blog is here and concludes: “The ... negligence is by government who refuse to collect tax owing for dogmatic reasons. We all have a right to be very angry with them.”