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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

To ask - is this tax fraud?

33 replies

SinnerSaint · 29/01/2016 12:38

Friend was gifted a large detached house a little while back. She owns another property which she had a mortgage on. She rented out that house (about three years ago now) though never informed mortgage company and is now selling that house as her primary residence to avoid capital gains. AIBU to be concerned here that a) this is tax fraud and b) she may find herself in a hell of a lot of hot water!
Or have I misunderstood?

OP posts:

wasonthelist · 29/01/2016 12:50

Sounds like fraud on the face of it. Unlikely to get caught judging by all the folk I have known over the years doing similar dodgy stuff.

specialsubject · 29/01/2016 13:02

she's lucky nothing happened to it because she'd have been uninsured. She's also lucky the mortgage company didn't find out as they would have repossessed.

yes, it is fraud. Leave her to it. Someone may well notice.

ticket123 · 29/01/2016 13:04

Yes it's fraud!

Collaborate · 29/01/2016 13:04

Not tax fraud, no. Any capital gains in the first 3 years after moving out are free of tax.

Might be mortgage fraud though.

JonSnowKnowsNowt · 29/01/2016 13:05

She should look into it properly. She may be able to do it all legally and still not be liable. There are rules about capital gains on properties. I think that if she's lived in the property in the past, she's allowed to not live in it as her primary residence for up to 3 years before selling and still be free of capital gains.

Even if she does have to pay capital gains, it will only be on a pro rata basis (e.g. if she's owned it for 10 years and it was her primary residence for 7, she'll only be liable for a third of the capital gains tax - and not even that, given my previous point)

I may be out of date, as it's some time since I had to deal with this, but she would be silly to commit fraud when it isn't even saving her anything. (obviously silly/wrong anyway, but YKWIM)

livingintheNL · 29/01/2016 13:08

Sounds like fraud.

HMRC are so understaffed doubt she will get caught.

MN view on this is to stop being nosey. My view is its defrauding the public purse, so very much your business to report.

SweetAdeline · 29/01/2016 13:09

I'm guessing she didn't tell hmrc that she was renting the house out in the first place.

Adeleslostbeehive · 29/01/2016 13:13

It's not no, the gifted house is her main residence and the rented out house is not. So capital gains would be due on the rented out house if she sold it. But what she'll do is sell the gifted house, move back into the rented house for a few years then that will be her main residence, and pay capital gains on neither.

If I've understood correctly the set up!

Adeleslostbeehive · 29/01/2016 13:13

I've just re read maybe I have understood- she's selling the rented out house? The one she doesn't live in?

Collaborate · 29/01/2016 15:14

Adeleslostbeehive It's already been pointed out that the gains made in the 3 years after moving out are exempt from CGT.

Adeleslostbeehive · 29/01/2016 15:16

I didn't say they weren't?

MaisyMooMoo · 29/01/2016 15:17

Yes, it is tax fraud. For a start she has to declare to the HMRC the income she was getting from the property she was renting out. She will have to provide evidence that she has lived in the main home otherwise she will be liable for tax. She could incur penalties too.

MaisyMooMoo · 29/01/2016 15:18

HMRC are so understaffed doubt she will get caught.

Don't be too sure about that.

lighteningirl · 29/01/2016 15:26

if she's declared the income then she could easily get caught selling it if she hasn't then it's quite serious fraud and I hope she does get caught..it's the same as falsely claiming benefits scumbag behaviour and in this case stupid as no capital gain tax is likely to be payable anyway.

MrsBethel · 29/01/2016 15:28

You're exempt from CGT for 18 months after moving out (used to be 3 years, they changed it a while ago) - so,err, yeah, it does look a bit dodgy on both fronts!

ImogenTubbs · 29/01/2016 15:41

Isn't it a bit more complex than that? Unless she's planning on saying that she's always lived there, she has to pay some CGT, no? You can get reductions if a place was ever your main home and if you let to residential tenants. I was looking into this the other day - it seemed very complicated!

bungmean · 29/01/2016 15:54

Get her to change her name to Ms G. Oogle.
She'll automatically find herself tax-exempt.

lalalonglegs · 29/01/2016 16:00

Yes, she should have declared it but as others have pointed out, she has 18 months where CGT is not charged plus she has a tax-free allowance on the next £40k of gains because it was her primary residence. She then has about £11k CGT allowance (and so will her spouse if married/civil partnered) so, unless her house value was growing by about £50k every year she owned it, she shouldn't have to pay anything.

MaisyMooMoo · 29/01/2016 16:06

It doesn't matter whether or not you make a profit from it, it still has to be declared to HMRC. Did she declare the income when she was renting it out I wonder? none of my business

livingintheNL · 29/01/2016 16:41

Don't be too sure about that.

I do hope so, I know a few friends of friends that have been getting away with it. :(

LurkingHusband · 29/01/2016 16:59

She rented out that house (about three years ago now) though never informed mortgage company

I suspect the mortgage company would be very interested, as they also have been fleeced - and right royally. Your friend has effectively tried to become BTL landlords on the cheap.

Also insurance would have been invalid (hopefully her tenants won't ever have to claim, as their insurance could be invalid too. Although they would have a claim against their landlord).

I imagine the local authority knew about this too ?

Potatoface2 · 29/01/2016 17:04

as shes trying to sell, it will be noted.....all estate agents give out 'money laundering' advice....im sure it wont go unnoticed...even if it takes a while for her to become aware of it

specialsubject · 29/01/2016 17:17

with the last 18 months exempt and the allowances, she probably won't be liable for CGT.

she has broken the terms of her residential mortgage, and that IS fraud.

life may also get very interesting if her tenants decide not to leave...

LurkingHusband · 29/01/2016 17:19

all estate agents give out 'money laundering' advice

It goes much further than that. Estate agents are bound by the same money laundering regulations as financial service providers (banks, etc). They will ask for a lot of paperwork - all of which will be copied and stored. If it's a larger chain, they'll have a dedicated Compliance team dealing with it, who should (competence depending) spot it in a trice. Bearing in mind the penalties for aiding and abetting money laundering are (a) incredibly severe and (b) not very easy to avoid by saying "I didn't know".

Due diligence and all that.

LurkingHusband · 29/01/2016 17:20

life may also get very interesting if her tenants decide not to leave...

Let's hope they don't find out the real situation. It would put the landlord over a barrel ...

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