UK Landlords Dodging an Estimated £1.73 Billion in Tax

Unscrupulous residential landlords could be dodging up to £1.73 billion per year in tax, according to analysis in a new report from think-tank Tax Watch. The rate of tax dodging has exploded since 2010, the last time HMRC published official figures on the scale of tax evasion in the buy-to-let sector, says the report.

In July, Stephen Timms, Labour MP for East Ham, asked the Treasury for the most recent estimate of tax lost through landlords failing to declare their income. In response, the financial secretary to the Treasury said that HMRC does not keep that information, but that “HMRC does estimate the tax gap arising from individuals in employment who have not declared and therefore not paid tax on lettings income. The latest estimate of this tax gap was £540 million for the tax year 2018-19.”

In correspondence with Tax Watch, HMRC confirmed that “in employment” referred to those whose main employment is via the PAYE system. The English Private Landlords Survey 2018 showed that at least two-thirds of tenancies are owned by those who will not be receiving pay through the PAYE system.

In other words, HMRC is only recording tax evasion for around a third of tenancies. “If the tax behaviour of the two-thirds not ‘in employment’ is similar to those who are, and we have no reason to believe otherwise, the total tax gap is then likely to be as much as £1.73 billion,” says the report.

Government figures released in 2013 estimated roughly 1.5 million landlords had evaded £500 million of tax in the year 2009/10. This was the last time data was officially published on the scale of evasion within the sector.

“By any calculation, the amount uncollected today is far larger than what it was in 2010, despite the government claiming to be cracking down on landlord tax dodging,” Alex Dunnagan, researcher at Tax Watch, told VICE News.

After releasing figures in 2013, the coalition government launched the “Let Property Campaign”, encouraging landlords who owe tax to make a disclosure to HMRC. The campaign was due to run for 18 months, but was later extended indefinitely.

Data obtained through a Freedom of Information request by accountancy firm Saffery Champness in 2019 showed that, in the first five years of the campaign, just 35,099 people made a disclosure through the campaign. This represents just 2.3 percent of the 1.5 million landlords originally identified as having evaded tax.

Campaigners point to these low take ups as evidence the current system isn’t working. Dunnagan told VICE News, “Introducing a national register of rental properties would be a simple means of improving compliance, and would raise large amounts of money for the government, which is desperately needed at this time."

Ex-Shadow chancellor, John McDonnell MP, told VICE News, “Of course we need much tighter measures to tackle landlord tax evasion and avoidance, but a fresh debate is needed on the role landlordism plays in our society. The recent revival of large scale landlordism has transformed housing into a commodity for profiteering, rather than a basic social need and entitlement.”

The Tax Watch report comes as a ban on evicting tenants – put in place because of the coronavirus pandemic – is due to end, on the 24th of August. Campaigners and politicians have warned of a “huge surge” in homelessness as landlords plan to take back their properties.

Research conducted by lettings platform Bunk last year found that, across the UK, there were approximately 5.2 million tenants currently renting in the private sector, with rental payments totalling £51.9 billion.

Michael Deas, a spokesperson for the London Renters Union, said, “All landlords exploit their renters: they make profits from their tenants' need for shelter while doing little or no work, but now we can see that millions of landlords exploit the rest of society too, by evading tax. If the government cares about ‘levelling up’, like it claims, then this kind of unfairness has to end. The Conservatives must force landlords to contribute, just like everyone else does.”

Anneliese Dodds MP, Labour Shadow Chancellor, told VICE News, “Government should be doing all it can to close the gap between the amount of tax that should be paid and the amount it actually receives. Every pound evaded is a pound less for schools, hospitals and police. The fact is that cuts to HMRC over the last decade have been a false economy: fewer resources means it’s harder to measure the tax gap in the first place, let alone recoup the money that’s owed – and as a result we all lose out.”

Simon Youel, head of policy and advocacy at Positive Money, told VICE News, “By letting landlords off the hook on tax avoidance, the government is once again showing that it is more interested in looking after the interests of banks and property owners rather than the workers and renters who face the threat of unemployment and eviction as the furlough scheme and eviction freeze comes to an end.”

An HMRC spokesperson told VICE News, “HMRC believes that its customers want to pay the right amount of tax and wants to help those that are not paying the correct amount to put that right. The Let Property Campaign is an opportunity for landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple, straightforward way and take advantage of the best possible terms. If you’re a landlord and you’ve undisclosed income, you must tell HMRC about any unpaid tax and you’ll then have 90 days to calculate and pay what you owe.”

@bencsmoke