The buy-to-let sector is preparing to face an assault from HM Revenue & Customs (HMRC), which has reportedly lost patience with many investors.

According to the Times, 80,000 landlords have been identified as claiming too much tax relief or failing to declare the amount of money they generate through rent. Others have been picked out because they have failed to declare a capital gain on the sale of a property.

The newspaper report indicates that HMRC will also target "ghost" landlords, who have failed to declare themselves as owners of property. Landlords who have underpaid their taxes during the last six years can now expect a call and HMRC will be able to impose financial penalties.

Gavin Davidson, property director of The Property Investment Market (TPIM), has expressed his disquiet at HMRC's strategy.

"It is very concerning that HMRC are turning the spotlight on many of Britain's buy-to-let landlords who may have filed incorrect returns or no returns at all. While buy-to-let can be a very lucrative investment, one of the main drawbacks is that many novice investors enter the market without fully understanding the complex and ever changing regulations and requirements.

"For many this burden of administration is too much and will cost landlords dearly in unpaid back tax and fines. The impact for many landlords could be devastating."

He has insisted, however, that potential investors should not be deterred. According to Mr Davidson, the buy-to-let sector is still extremely rewarding and successful investors can use their portfolio to significantly boost their retirement fund.

Many existing landlords will remain anxious, however, as it seems certain that some will be forced to sell their property as a result of the financial penalties.

Peter Phelan, fund manager of Pacific Continental Fund Management, has issued the reminder that there are many other ways to invest in property. Property investment funds, such as Pacific Continental's Skylight Capital Build-Up, may well prove popular with those keen to avoid "the headache of negotiating complex tax rules", he suggested.

© Adfero Ltd