Advisers are obliged to question discrepancies with buy-to-let portfolio clients and file Suspicious Activity Reports when they believe a borrower could be evading tax or money laundering.
Last year the Association of Mortgage Intermediaries warned that advisers could be liable if they don’t speak up after spotting dodgy income or profits amid changes to portfolio lending rules.
Tax evasion by residential landlords is a target for HMRC , which currently runs the Let Property campaign, encouraging landlords to come clean over tax affairs and address any previous errors.
The mortgage market is now paying more attention overall to landlords’ tax and income affairs and initiating difficult conversations with the client where it is needed, according to David Whittaker, chief executive of Mortgages for Business.
He said: “We’ve seen a number of clients where the story they’ve told us over the income and tax doesn’t match the numbers and had to file a couple of Suspicious Activity Reports where they declined to make use of the HMRC’s Let Property campaign since the new PRA rules came in.
“Initially clients are grumpy for being pulled up, but the majority of conversations have ended with the borrower regularising their tax affairs and the loan going ahead.
“The whole market is now showing more curiosity about borrowers’ tax and income, with brokers and lenders sharing responsibility for spotting irregularities – if the broker doesn’t spot something that the lender does, it’s not necessarily criminal.
“But if the adviser does see something that looks suspicious but fails to act it could come back to bite them.”
No hesitation to report suspicions
There has been an increase in tax discussions with landlords, according to Shaun Church, director at broker Private Finance – and this includes arrangements to help borrowers with arrangements amid changes to buy-to-let relief.
He said: “Since the introduction of the new PRA rules for landlords, there have certainly been more conversations between brokers and clients regarding the latter’s tax affairs.
“This includes looking at different property ownership structures to take into account varying levels of personal income allowances and tax bands within a household.
“We do monitor clients’ taxes and if something looked suspicious, we would certainly flag this to the relevant authorities – although fortunately this has not yet been the case for any of our clients.”
Jane King, mortgage adviser at Ashridge Private Finance, has not seen an uptick in suspicious activity but said she would not hesitate to report it.
She added: “In view of the new PRA rules on landlords and lender requirements, we are now obliged to discuss client tax and finances and report anything suspicious otherwise, as advisers, we could be in breach of money laundering and other reporting rules and find ourselves prosecuted.
“We should be doing this anyway under ‘know your client’ rules even for buy-to-let properties.
“Bearing in mind that we are not accountants we only have to report our suspicion.”
A HMRC spokesperson said: “We know most landlords pay their fair share, and we offer information and guidance to help landlords get their tax right and avoid errors.
“HMRC also has a robust strategy for tackling evasion and avoidance in the rental sector, collecting and analysing data gathered from a wide range of sources to understand and manage this risk to the tax system, and identify where there may be undeclared income.”