A leading accountancy firm is warning landlords that because the sector is buoyant and house prices increases are on a record high, then landlords must be wary of HMRC’s tougher stance towards ‘misreporting’ tax submissions during the year.

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Tim Walford-Fitzgerald, a partner at the accountancy firm, claims that of six possible tax clampdowns on the property sector there is one that landlords should be careful of.

He warns: “Now that the residential mortgage relief restriction is in full force, we expect less tolerance for misreporting, especially in light of the losses that some landlords may have from recent defaults.

“Capital Gains Tax for residential property transactions can now be paid within 60 days, following calls for the 30-day payment period to be doubled due to unsuspected homebuyers being hit with fines. We expect the recent extension of the disposal reporting deadline to result in greater enforcement against those who have failed to meet their reporting obligations.”

Other there are other tax changes affecting lettings’ activities regarding different types of properties in relation to stamp duty.

Walford-Fitzgerald explains: “At the moment if you buy the classic high street property of a ground floor shop with a flat above, you only pay commercial rates of SDLT.

“HMRC are proposing that the cost should be apportioned so only the shop benefits from commercial rates, with the flat suffering the higher residential rates. HMRC are currently consulting on these proposed changes together with considering changes to reduce the increasing number of incorrect multiple dwelling relief claims. The review is due to close on February 22.”

The government has also scrapped the reduced VAT rate on holiday lets.

He continues: ”Don’t forget that the temporary reduced rate of VAT for supplies of holiday accommodation increased from 5.0 to 12.5 per cent on October 1 2021. Even if a holiday is taken after October 1 the 5.0 per cent can still be applied if a tax point is created beforehand.”

Walford-Fitzgerald  warns landlords who are developing student accommodation must try to circumvent the tax traps and Vat issues.

“There are VAT reliefs available for student accommodation where classed as dwellings or relevant residential. The former is preferred as it avoids the need to monitor the use of the property over the 10 years post completion.

He says: “If constructed as dwellings (single studio units or cluster flats), the VAT relief (zero-rate) extends not just to the main contractors but to services provided by sub-contractors.”

He recommends landlords can recover VAT expenses back for professional services by carefully organising their claims to ‘retrieve’ the charged 20 per cent. However any planning conditions that prevent the separate disposal of any studio or cluster flats within any development, could seriously impact the above analysis resulting in a VAT charge taken from the development’s profit.

There are also other new related tax burdens that property developers will be saddled with from April 1st as well as intricate VAT thresholds to contend with when converting commercial properties into private residences.

He explains: “Last year was been one of the busiest for the housing market in more than a decade. According to Zoopla, estimates show that there were 1.5 million sales in 2021, with the total value of homes changing hands at £473 billion, some £95 billion higher than in 2020.