How does the Taxman Know?

[bonkysod]

I am asking the following questions to allow me to complete my assignment for coursework at college. I am tasked to detail and reference associated pitfalls with the increase in 'Property Millionaires' and property related 'new found wealth'.

When an individual purchases a property and lets it out.. how does the Taxman know about details such as..
1. Difference between purchase and selling prices on realising the 'asset?
2. Income over expenditure figures.. honesty on tax form
3. Amount of properties held by landlord.. does he know?
4. Sale of property within the tax year etc.. when is the CGT if applicable payable.
5. Tax due to be paid per annum etc..from ie the Landlord

I have a copy of a Tax return but it seems that it is purely on an 'honesty basis' when the red section is concerned.:confused:

I have spoken to several Landlords and they all admit to 'deviating slightly from the truth' when filling out tax returns..

Does this mean that a few Property Millionaires will perhaps one day not realise their growth???

[sretosf]

I am asking the following questions to allow me to complete my assignment for coursework at college. I am tasked to detail and reference associated pitfalls with the increase in 'Property Millionaires' and property related 'new found wealth'.

When an individual purchases a property and lets it out.. how does the Taxman know about details such as..
1. Difference between purchase and selling prices on realising the 'asset?
2. Income over expenditure figures.. honesty on tax form
3. Amount of properties held by landlord.. does he know?
4. Sale of property within the tax year etc.. when is the CGT if applicable payable.
5. Tax due to be paid per annum etc..from ie the Landlord

I have a copy of a Tax return but it seems that it is purely on an 'honesty basis' when the red section is concerned.:confused:

I have spoken to several Landlords and they all admit to 'deviating slightly from the truth' when filling out tax returns..

Does this mean that a few Property Millionaires will perhaps one day not realise their growth???

All self assessment tax is based on honesty, with big penalties if you fail to comply.

However you have been asked to detail and reference associated pitfalls with the increase in 'Property Millionaires' and property related 'new found wealth'.

You may want to consider the age old problem of profit versus cashflow - there are a lot of property millionaires living in poverty. A typical example (and one you can easily google) is the elderly person living in a £1m house (in some parts of the capital this can be quite a modest home!), living on a small pension. Technically speaking they are a millionaire, and for council tax purposes they are taxed as one, but they sure as heck don't feel like one.

Another pitfall of property millionaires is when someone moves house - we tend to pay stamp duty, estate agents fees etc as a % of the value of the property - so in 1990 when a house cost £50k it only cost say £1k to move house, now it costs more like £20k - this restricts peoples mobility, and in doing so the labour market etc.

I think that the bottom line is property gains are paper gains only unless you inherit the gain (after Mr Brown has taken his slice), downsize, leave the country or own a second property (again you'll be taxed on the gain). Otherwise any gain you make on your current property is superceded by the increase in value of your next one, and the taxes / fees you will pay to move house.

The main beneficiary of the gain in house prices is the tax man - google stamp duty tax take, and the banks who earn more interest on the bigger mortgages people need!