Investment Property and Tax Evasion

[mayway]

Hi all,

I am a home owner and am lucky enough to own 2 investment properties (and when I say own, natuarally I mean co-own with the bank). I am very particular that I keep my tax affairs in order and all my tenants claim rent allowance and are registered with the tenency board.

However, I am aware of somebody who has done the following and I'm wondering what's the liklihood of it ever being a problem for him.

He was living at home with his parents and he bought a small house and claimed the FTB grant and naturally paid no SD but he immediately rented it out and never lived there himself. He was collecting the rent in cash every month for about 3 years and then he sold it and made a nice little profit out of it. He still continued live at home with his parents.

In the meantime his girlfriend bought her own apartment (again claiming the FTB grant and no stamp duty) and after a while he moved into it with her.

Then they bought a house together, moved into it and immediately rented out her apartment. My understanding is that because the apartment was bought less than 5 years ago that they are liable for SD clawback from the day they received the first rent payment. However, true to form, they are ignoring this and again the tenants they have are paying cash and they are not delaring any of it.

My own view on this is that it simply is not worth it because with the right gearing on investment properties you can really keep your tax bill low. However, I never hear of people being caught for this type of thing and was just wondering what peoples views are on it. Does anybody know if revenue seek out these people and what happens to them if they get caught?

Cheers,

mw

 

[aaa1]

Revenue are starting a crackdown but if you do it cleverly enough, it's very hard for them to nab you. For example, your friend collected the rent in cash every month so there's no way (that I know of) for them to prove he had tenants. He probably had bills in his name as well which would 'prove' that he lived there. If they did come knocking he could claim that he was doing the 'rent a room' scheme - I think you can charge rent of up to €700 per month without having to pay tax on it.
But if the Revenue do nab him and his girlfriend they will be liable to pay the extra stamp duty (if applicable), they will claw back the tax relief on the mortgage and they will impose fines and penalties. The fines and penalties are likely to be double the claw back so they'd be looking at a hefty sum.

 

[ubiquitous]

Revenue are starting a crackdown but if you do it cleverly enough, it's very hard for them to nab you.

Large numbers of professionals and business people made this assumption while evading taxes in the 70s/80s/90s yet when the day of reckoning arrived and Revenue began to focus in on the various evasion scams, extracting the tax, interest, penalties etc was as easy for them as taking sweets from a baby. In tens of thousands of cases cases, the Revenue collected large settlements without having to visit or even write to the people involved.

 

[DirtyH2O]

Do you really believe that no tenant received a single letter to that address in three years.
There is always a trail, just needs someone willing to look hard enough. It would be a boost to the coffers if there was a deficit in govt spending.

 

[mayway]

It would be a boost to the coffers if there was a deficit in govt spending.

This is exactly what I would be worried about. I imagine that there must be thousands of chancers out there who have done this in the last couple of years but it would not be worth Revenue's while to go after them now because
a) the amounts of amount involved are relatively low and
b) the goverment have more money than they need at the moment.

Why not wait 15-20 years and then just plough in and take everything (after the interest, fines, penalties, etc have all been added to the original total).

You have to imagine that Revenue have all the information they need to catch these people and it's only a matter of time before they collate it all and decide when to pounce.

Does anybody know of a case where someone who only started investing in property in the last 5 years has been done for evasion?

Cheers, mw

 

[Afuera]

Revenue are starting a crackdown but if you do it cleverly enough, it's very hard for them to nab you. For example, your friend collected the rent in cash every month so there's no way (that I know of) for them to prove he had tenants. He probably had bills in his name as well which would 'prove' that he lived there.

I don't think it's that hard. All it takes is for one of the previous tenants to apply for rent relief (can be done up to four years after the relevant tax year and Revenue are only too happy to process these even if they're missing some details such as the Landlords ppsn etc.). As a previous poster said if the tenant had any letters sent to them during their tenancy then that's proof that they were residing there.

If they did come knocking he could claim that he was doing the 'rent a room' scheme - I think you can charge rent of up to €700 per month without having to pay tax on it.

I don't think that would work as you're still supposed to declare it every year (even if you don't have to pay tax on it).

 

[liteweight]

Presumably tenants need notification of their tax credits sent to their address. If they are students, their college needs to send information on registration etc. Just because the landlord has the bills in his/her name, it does not mean that tenants have not supplied the address to other official bodies.

The rent a room scheme is exempt up to alimit of 7,620 per annum. If anyone charges above this, they are liable for income tax on the entire amount not just the difference.

 

[DirtyH2O]

It think it is like CGT allowances, if you don't declare in time you forfeit the allowance.
There are hardly that many people stupid enough to evade with so many legitimate ways to minimise the tax bill. for rental income.
20% captial gains still leaves 80% clean money and no dangling sword over your head. I don't think it's ever worth the risk when you see how people get caught decades later and how expensive it is.
I'd imagine anyone who got a letter for offshore accounts knows that you are just a turkey waiting for Xmas.
If you fail to disclose do revenue assess what the market rate for rent was or do you get a chance to provide this information?

 

[mayway]

There are hardly that many people stupid enough to evade with so many legitimate ways to minimise the tax bill. for rental income.

It's hard to believe but there are people out there who are convinced that once you "declare" yourself to Revenue (for property investment) that they won't leave you alone and will keep taxing you further and further until it's all gone! It's amazing that people are stupid enough to evade tax because of this abismally ignorant paranoid view especially when the tax take can be so minimal.

 

[beattie]

Your friend is very very foolish, all it takes is one tenant to get peeved and send a little note or call to the taxman. There could be one hell of a tax bill winging its way to your mate in a few years and I wouldn't think (and certainly hope) that the taxman wouldn't show any mercy. Something tells me that the taxman is storing this for his rainyday fund

 

[hmmm]

I have a landlord who appears to be claiming TRS on several of his investment properties - once I leave the property I'm sending the revenue a letter with my suspicions. He won't give me his PPS number but offered me a "deal" if I didn't fill in a rent relief form - so I took the "deal" and once I leave I'll claim my 4 years relief anyway, the revenue I'm sure will track him down from the address I provide. I don't see why I should pay more in my PAYE because he isn't paying his fair share - if your friend has any tenants with my attitude they are in trouble.

 

[liteweight]

He can only claim TRS on his PPR. I assume Revenue can tie this in to a PPS number. I'd say it's more likely that he's evading income tax. I'd say quite a number of tenants claim rent relief retrospectively.

 

[jfitzer]

All it will take is one tenant to send in a Rent1 form as has been heavly promoted over recent months by the Revenue. There is method in their madness and they have started to write out to the landlords following receipt of Rent1 forms. Stamp Duty clawback is one side that they are very interested in.

 

[rmelly]

Presumably tenants need notification of their tax credits sent to their address. If they are students, their college needs to send information on registration etc. Just because the landlord has the bills in his/her name, it does not mean that tenants have not supplied the address to other official bodies.

The rent a room scheme is exempt up to alimit of 7,620 per annum. If anyone charges above this, they are liable for income tax on the entire amount not just the difference.

and is only applicable to PPR

 

[liteweight]

and is only applicable to PPR

Is this a question? Yes it is only applicable to PPR...see below.

He can only claim TRS on his PPR. I assume Revenue can tie this in to a PPS number. I'd say it's more likely that he's evading income tax. I'd say quite a number of tenants claim rent relief retrospectively.

 

[mayway]

I guess what would worry me about the entire situation is that now his girlfriend is down as the registered owner of 2 properties but yet there is no sign of any income being declared against either. Surely but surely this must be a warning sign to Revenue? It must be very straightfroward to generate a list of people who are at this and then investigate them? What grounds would people have to NOT worry about this?

Cheers, mw