What was once known as a tax only affecting the very wealthy could now catch out everyday landlords thanks to changes in its implementation and soaring house prices.
The tax is technically known as "annual tax on enveloped dwellings" (or ATED) and it was initially introduced to prevent wealth homebuyers setting up companies to buy properties in order to avoid duties.
But now a reduction in the point at which the tax kicks in could leave buy-to-let investors - who increasingly buy properties through companies - with thousands of pounds in fines. This situation could arise even where the properties in question are fairly modest.
The tax, which is paid annually, initially applied only to houses worth more than £2m when it was first introduced in 2012. However, as of April last year it applies to all properties worth more than £500,000 - meaning it's likely to hit many investors in the south of England.
While there is an exemption for properties which are rented out privately, the owner must still file a return and risks being fined if they fail to do so. Experts have expressed concern that many landlords may not realise their properties are now liable for ATED.
The situation could be exacerbated as landlords rush to register limited companies in order to get round punitive changes to tax relief on mortgage payments, currently being phased in.
Lucy Brennan, of Saffery Champness, the accountants, said: “I have had problems with clients who aren’t aware of this. I had a landlord who called me to ask if he would be caught, I told him he was exempt but needed to fill in the return.
“Another whose parents had bought him a couple of properties for the future several years ago called me. He said I want to sell them, I said to him what have you done about ATED and he had no idea.”
Next April will also see a new ATED valuation, which could mean many people who have not been previously caught falling into the net. Currently liability is calculated by the 2012 value of the property, but rapid house price growth could mean many additional owners are caught out.
Ms Brennan said: “My main concern with it is that people just don’t know. If you have decided you are going to invest in property in London that £500,000 mark could well catch you.”
ATED - how it works and how much you pay
You pay ATED if your property is owned by a limited company and is either empty or lived in by a “linked person”, such as a family member. If the property is rented out privately you are exempt but must still let HM Revenue & Customs know.
Properties worth between £500,000 and £1m are liable for an annual charge of £3,500 and those up to £2m are liable for £7,050. This number scales up until homes worth more than £20m, which are liable for an annual payment of £220,350.
Those who fail to pay or file a return could face fines ranging from £100 for being a day late to £700 for being more than a year late. This is in addition to the full tax charge and an additional levy of up to 100pc of the total tax bill.
These fines will be levied per property and roll up, so a landlord with 10 properties who forgets to file for several years could face a bill for tens of thousands of pounds.
Nimesh Shah, a partner at Blick Rothenberg, the accountants, said: “I’ve seen many instances where property investors are just not aware of this. The publicity around ATED was originally tagged as a ‘wealthy man’s tax’ but the publicity on the value reducing hasn’t been that great.
“You could end up faced with some hefty penalties.”