Property Rental – Tax Evasion Clampdown
August 24th, 2011
We all know that governments around the world are looking at ways of cutting their deficits. Publically governments are being seen to cut costs. Projects are cancelled. Staff costs cut. Savings are made. What is generally less publicised is the other way of reducing a deficit – increasing income.
In the UK, although it may not seem like it to some people, were by and large law abiding and pay our relevant taxes. Yes, we will do what we can to legally reduce those taxes (tax avoidance) but few people get involved in hiding things from the tax man (tax evasion). In other countries the black economy is a much bigger percentage of the whole economy than it is in the UK. In some countries it is endemic. Obviously in such countries one way of increasing income is to clamp down on tax evasion – after all tackling tax evasion isn’t as much of a vote loser as increasing taxes!
The Spanish Government is one which has publically said that it is clamping down on tax evasion. The primary focus of tax evasion is people who work for cash and don’t pay any tax, but this clamp down is also manifesting itself in other ways. They are being quite successful in this and have recovered quite a lot of money.
Despite having said that in the UK we are generally law abiding and pay our relevant taxes it is also clear that, contrary to popular opinion, when Brits go abroad they quickly pick up the culture of that country. We quickly realise that nobody declares everything and believe that because everybody does it it is OK. We don’t do things properly like we would do at home. We cut corners and do everything to keep costs down. We also suffer from what I call selective amnesia. We conveniently believe that if we have a holiday home abroad we don’t have to declare any income in that country because we are tax resident in the UK, but then forget to tell the UK tax man because the property is abroad. Clearly you can’t have it both ways and you should pay tax somewhere but some people do try and get away with it hoping that nobody will notice. Of course the governments know that this goes on and look out for it. Most of the time people will get away with it because the authorities haven’t had the resources to investigate everybody. Now, with governments looking at increasing revenue, people are getting caught.
We are now seeing more people contacting us saying that they have received letters from the tax authorities in Spain over some sort of irregularity in their tax affairs. Recently I have seen two broad types of letters. One is along the lines of “we know that you have been renting out your property but you seem to have forgotten to tell us. Please send us €X to cover taxes, fines and interest”. The other is along the lines of “You are not allowed to rent out the property but we are aware that you have so please stop renting and send us €X for fines”. In the case of the latter these sums can approach €20,000.
So what can you do? Well first of all, if you are renting out a property make sure that you are allowed to. If you are allowed to rent out the property then make sure that you pay your taxes both in the country in which the property is located and also in the country where you are tax resident. You should also take some advice to legally reduce down the taxes that you should pay.
Peter can be contacted at Chebsey & Co, 51LondonEnd,Beaconsfield, HP9 2HW or www.chebsey.com or via telephone at 01494 670440 or via fax at 01494 670276 or by email at pje@chebsey.com
