The taxman is trawling Land Registry records to put together a database of buy to let landlords and holiday homeowners suspected of fiddling their expenses, according to leading accountants.

Hot on the heels of the scandal of MPs putting in inflated or bogus claims, the taxman is looking at taxpayers flouting the rules.

The warning comes from several accountancy firms, including PwC and UHY Hack Young, who claim the tax man is initiating more capital gains tax inquiries than ever before and looking closely at claims for capital expenses.

Taxpayers can claim capital expenses when disposing of a property that is not their main home or if the property is a former home that has had another use.

The scope of claiming capital expenses is limited with only these allowed by law

Purchase costs

• Any fees paid to a surveyor, valuer, auctioneer, accountant or agent. Accountant’s fees can only relate to the valuation or apportioning the value of a property.
• Legal fees, including the cost of legal advice relating to the transaction, including the conveyancing or transfer of title, and stamp duty.

Selling costs

• Advertising to find a buyer, including estate agent fees
• Legal costs – what is paid to a solicitor for the conveyance or transfer of title
• Professional costs – reasonable fees for any valuation or apportionment required for a capital gains tax calculation

The expenses the taxman is really tracking are improvement costs.

These are the costs that add value to a property that are still apparent when the property is sold – like a garage, conservatory or extension.

Many property owners try and reduce their capital gains tax bills by including day-to-day repairs and renewals in their capital gains tax calculation.

Popular expenses to count as capital costs include replacing a roof and fitting kitchens or bathrooms. Rules say that if the replacement is like-for-like then the cost should go through financial records as a repair – but if they add value, that part should be considered as a capital cost.

One of the basic rules of tax is day-to-day running expenses cannot be included to reduce capital gains tax.

HM Revenue and Customs is sending letters to taxpayers they believe may have a capital gains tax liability urging them to check their calculations and pay any tax due before an inquiry is launched later this year.