Rental Loss and Legal Fees

[Tassotti]

Can the above be classified as tax-deductible expenses?

Thanks in advance.

Tass

[Tax Accountant]

Can the above be classified as tax-deductible expenses?

Thanks in advance.

Tass

(1) Rental loss can only be carried forward and used to reduce next available rental profits.

(2) As to legal fees, it depends on the nature of the expense.

If incurred to recover rental arrears or to remove a tenant etc, yes, it can be deducted from the rental income.

If incurred for purchase of property, it is simply added to the cost of the property and taken into account in the calculation of Capital Gains upon eventual sale of the property.

Ramnik

[Tassotti]

Thanks Ramnik

[Tax Accountant]

Thanks Ramnik
You are welcome.
Ramnik

[Tassotti]

(1) Rental loss can only be carried forward and used to reduce next available rental profits.
Ramnik

Can rental loss be carried forward to the next year if I have other rental properties?

[Tax Accountant]

Can rental loss be carried forward to the next year if I have other rental properties?

Basically, yes.

All let your properties are treated as one for tax purposes, ie all profits and losses from properties are pooled together and the net profit / loss effectively treated as arising from a single lettings business.

If the final result is a net loss, the loss is carried forward and set of against the total net profit of the subsequent year or added to total net loss of the subsequent year.

Does this answer your question?

Ramnik

[Tassotti]

Yes..Thanks Ramnik. You are the Tax Guru.

I remember reading the debated post about remortgaging to current value and interest payments.

I put this to my sister (who is a partner in a large firm of tax accountants) and she wasn't aware of the situation either.

Thanks again

[Tax Accountant]

Yes..Thanks Ramnik. You are the Tax Guru.

I remember reading the debated post about remortgaging to current value and interest payments.

I put this to my sister (who is a partner in a large firm of tax accountants) and she wasn't aware of the situation either.

Thanks again

Yes, there are many professionals who still aren't aware of the position regarding the ability to remortgage upto the value at the date when letting is commenced and use the funds for any purpose.

It is important for you, your sister and others to understand that this is normally applicable only where the property was previously used as a residence, ie not let, and subsequently introduced into the lettings business.
In this situation, the remortgage funds are available to be used for any purpose, including private purposes.

In cases where the property has been bought as a buy to let and the value has subsequently increased, any remortgage funds have to be used for other qualifying purposes, eg, improvements to let properties or towards the purchase of other properties for letting.

Ramnik

[Worldlife]

Also thanks from me for this information!

Found the point you have made about remortgaging very interesting.

Our family trust purchased out late mothers property, not from tax or inheritance tax aspects, but to deal with her increasing inability to cope propertly with her own affairs and to provide her with extra income from the fixed rate mortgage payments made to her from a family trust. She of course continued to live there rent free.

When the Trust repayed the mortgage to the Executors on the death of mother The Trustees (who then became beneficiaries) remortgaged with a Building Society. The amount of mortgage was increased we were provided with two certificates from the Society. One was for the original amount of mortgage replaced and one was for the extra amount. We thought that we might not be able to claim tax relief on the second certificate but thought it was only fair to continue to claim for the original fixed interest amount that was however short of the amounts on the two certficates.

I'm delighted to read that if interest rates increase the two certificates are probably not relevant and the key issue will be the value of the property at the time of remortgage. The total remortgage was up to about 35% of the property value at the time of remortgage.

If I check through all the figures and find that there is a significant difference involved am I correct in thinking I can claim arrears backdating five years?


PS In our case the tax offices for both my wife and myself seem to be allowing the tax to be paid on profits to be deducted a year in arrears by adjusting the tax code on our private pensions. After many years of declared profits they did seem very helpful when were reported a substantial loss for the tax year ending this April. They apologised for not being able to make an immediate refund but promised to adjust the tax code for 2006 to 2007. Seems that they are treating us quite reasonably.

[Tax Accountant]

A long thread. Obviously you wanted to make sure that all relevant information was provided.

You need to decide at which date the property entered your lettings business. Was this the date of the purchase by the trustees from your late mother or was it the date it was let to a third party after your mother passed away. It appears that the relevant date is the later date but you must make sure that this is correct.

Once the date is established as above, you need to ascertain the value of the property at this date. Any amount of mortgage(s) upto this value is eligible loan for claiming tax relief on the interest against rental income.

If you establish that you have claimed only partial interest, you should make a claim under ''error or mistake claim'' for upto last 6 years and submit revised accounts to show the amount of profits over-assessed each year. This can be done by a simple letter to your and your wife's tax offices.

Regarding your PS final paragraph, the Inland Revenue is normally quite helpful. The treatment in collecting the tax on rental profits through an adjustment to your PAYE coding allowances is to keep as many people out of Self Assessment as possible. This is quite normal, circumstances permitting.

Ramnik

[Worldlife]

Thanks again Ramnik....

Will follow this one up when I have finished setting up an Extraordinary General Meeting of our Table Tennis Club to amend our Constititution to meet the requirements of new liability insurance providers!

LIfe does not seem to be getting easier.

Will report back on progress if we decide to go for the "error or mistake claim"

[Tax Accountant]

Thanks again Ramnik....

Will follow this one up when I have finished setting up an Extraordinary General Meeting of our Table Tennis Club to amend our Constititution to meet the requirements of new liability insurance providers!

LIfe does not seem to be getting easier.

Will report back on progress if we decide to go for the "error or mistake claim"

You are welcome.

Ramnik

[Worldlife]

Looked up all the details now and the rental activity started after the initial private mortgage but before the remortgage.

Changes to the freehold to create a leasehold and the parties involved in each were completed after the start of the rental activity. The remortgage to settle an estate after the death of a party to the original mortgage were also completed after the start of the rental activity.

It seems rather difficult therefore to substantiate the interest for the increase in mortgage to be tax allowable.

Thanks for the advice though and sorry for my delayed response.

[Tax Accountant]

Looked up all the details now and the rental activity started after the initial private mortgage but before the remortgage.

Changes to the freehold to create a leasehold and the parties involved in each were completed after the start of the rental activity. The remortgage to settle an estate after the death of a party to the original mortgage were also completed after the start of the rental activity.

It seems rather difficult therefore to substantiate the interest for the increase in mortgage to be tax allowable.

Thanks for the advice though and sorry for my delayed response.

If in doubt, always seek the advice of a professional.

Ramnik