University of London professor, Richard Murphy, says that although it is perhaps impossible to calculate the exact figure, losses in undeclared tax from the buy-to-let sector could be as much as £1 billion annually.
Murphy analysed figures produced by Newham Council, London, which revealed that half of the buy-to-let landlords within the borough were not registered for self assessment with HMRC. It was estimated that £200 million of tax was not paid in London alone, as a result of the failure of landlords to register.
HMRC has estimated a loss of £550 million in tax per year across the whole of the country, but Murphy’s larger figure comes from extrapolating Newham’s data estimating higher returns for London than the rest of the UK.
The loss of tax on rental income could be £480 per property and would be unlikely to include unpaid capital gains tax. A previous study in 2011 suggested that, of 200,000 buy-to-let properties sold that year, only 52,000 were declared for CGT that year. While accepting that it was possible for some properties to be sold at a loss or have realised non-chargeable gains, Murphy felt that at least half of all gains were not disclosed.
Murphy’s criticism is directed solely at the government and his solution is to add a financial charge to landlords, all of whom he believes should be registered with HMRC. In his blog, Murphy says 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.”