Taxable Expense? Letting Agent fee?

[Friston]

I used a letting Agent to find me a new tenant for my property. It cost £500 + VAT (=£585)
Can I set claim this as an expense to offset the taxable income. If so do I use £500 or £585 as the expense claim?

[Tax Accountant]

I used a letting Agent to find me a new tenant for my property. It cost £500 + VAT (=£585)
Can I set claim this as an expense to offset the taxable income. If so do I use £500 or £585 as the expense claim?

Yes, this is an allowable expense. The amount to be claimed is the amount you are out of pocket by. If you are registered for VAT, you will reclaim £85 VAT from the VATman and in that case, you will only claim £500 in your letting accounts. If VAt is not reclaimed, you can offset the full £585 in your letting accounts.

On a secondary point, if people are registered for VAT in respect of their other trades as a sole trader, they may be able to reclaim the VAT incurred in their lettings business. Both the main business and the lettings business have to be in the same ownership to be able to do so. The claim is under the De-minimum rules.

Ramnik

[johnjw]

Ramnik,
The possibility that someone registered for VAT in another trade, could reclaim VAT on expenses incurred in his (separate) lettings business, is very interesting. I'm afraid I've never heard of the de-minimum rules; could you provide a reference I could look up please?
If you did reclaim VAT on expenses, would it not mean that you would have to charge VAT on the rent?
John

[Tax Accountant]

Ramnik,
The possibility that someone registered for VAT in another trade, could reclaim VAT on expenses incurred in his (separate) lettings business, is very interesting. I'm afraid I've never heard of the de-minimum rules; could you provide a reference I could look up please?
If you did reclaim VAT on expenses, would it not mean that you would have to charge VAT on the rent?
John

Rent income is exempt from VAT and therefore you could not charge any VAT on rent in any case. This therefore puts your rental expenses in the exempt category and therefore you would not normally be able to reclaim any VAT on the rental expenses.

However, if your rental expenses VAT in less than a certain amount (I believe £625 per month) and also less than the Goods and expense VAT on your VAT Registered business, you are allowed to reclaim the VAT on rental expenses. This is on the basis that it is 'de-minimus'.

You could ring up the VAT helpline and ask them to forward to you the VAT booklet relating to 'partial-exemption' and 'de-minimus exempt inputs. Although I have not loked up the VAT website, I am sure you will be able to find it there as well.

I hope this helps.

Ramnik

[johnjw]

Ramnik
Thank you. Investigation of the deminimus rules appears to be another very good idea to follow up if you have a VAT registered business as well as your letting business.
"Another" refers in particular, to the debate which you lead, a few threads ago, on the provisions of BIM 45700.
I think that both deminimus rules and BIM 45700, could be very important for many landlords, yet I suspect that not many people know about them.
Thank you again for bringing them to our attention.
John

[Tax Accountant]

Ramnik
Thank you. Investigation of the deminimus rules appears to be another very good idea to follow up if you have a VAT registered business as well as your letting business.
"Another" refers in particular, to the debate which you lead, a few threads ago, on the provisions of BIM 45700.
I think that both deminimus rules and BIM 45700, could be very important for many landlords, yet I suspect that not many people know about them.
Thank you again for bringing them to our attention.
John

I am glad to have been of help to you and others.

I believe that the interest on remortgages is one of the most important one which many are still not aware of.

CGT Lettings relief of upto £40,000 for each joint owner is another important one. This applies where a property has been your only or main residence at anytime in your ownership AND it has also been let as residential accommodation at anytime in your ownership.

Another one regarding CGT is the business asset taper relief (upto 75% after only 2 years) where a property is let for a qualifying trade carried on by individuals, partenerships or companies.

Ramnik

[ivrytwr3]

My wife and I have just purchased our only property for £91500 and are intending to let it in Jan 06.

We are both working (one full one part time) and are not self employed or VAT registered. Does any of this tax relief apply to us?

As you can tell i am new to this and would just pay bills as they arrive, no idea about entitlements etc :mad:

[Tax Accountant]

My wife and I have just purchased our only property for £91500 and are intending to let it in Jan 06.

We are both working (one full one part time) and are not self employed or VAT registered. Does any of this tax relief apply to us?

As you can tell i am new to this and would just pay bills as they arrive, no idea about entitlements etc :mad:


You will be able to claim the usual allowable expenses against your rental income. These would include interest on any loans (existing or new) on the let property. If you remortgage this property to raise some capital, the loan interest on this new loan would also qualify as an expense against your rental income.

CGT Lettings relief of upto a maximum of £40,000 for each joint owner may apply to you if and when you sell the property after you have let it. This may mean that you could keep on letting it for a number of years before becoming liable to any Capital gains tax on any profit you make on selling the property.

Ramnik