Basic tax questions

[s_b]

Any help on this:

I let out two properties but after deducting allowable expenses, I am carrying a loss for FY2005/06 (first year of letting).

1) Do I need to notify the tax office regarding this "income" (as it is a loss!). Or can I wait until I have a taxable profit due (maybe next financial year)?

2) If I have to notify the tax office and fill in the S.A. forms, can I carry the loss forward and offset against any future taxable profits?

Thanks in advance...

[MrShed]

I think that you can offset this loss against the other income tax you pay through PAYE? Assuming you do of course!

[Tax Accountant]

I think that you can offset this loss against the other income tax you pay through PAYE?

Mr Shed, what can I say to you?

To the Querist:

Q 1) Do I need to notify the tax office regarding this "income" (as it is a loss!). Or can I wait until I have a taxable profit due (maybe next financial year)?

Q 2) If I have to notify the tax office and fill in the S.A. forms, can I carry the loss forward and offset against any future taxable profits?

ANSWER: You have to complete the SA Return, including the Land & Property pages. Yes, you can carry the loss forward and offset only against first available lettings business profits of future years until the loss has been fully exhausted. If you make a loss again in the next tax year, losses of both years are rolled together and carried forward to the third year, and so on.

Ramnik

[s_b]

Thank you Ramnik.

One further question:

One property was bought in 2003 and this was let out immediately. For 12 months between 2004/2005, I lived in the property.

To qualify for the 12 months PPR (and further 3 years pre-sale) for CGT reasons, do I need to notify the revenue of this? If so, how do I do this? Is there a specific form that needs to be filled?

Thank you in advance

[Tax Accountant]

Thank you Ramnik.

One further question:

One property was bought in 2003 and this was let out immediately. For 12 months between 2004/2005, I lived in the property.

To qualify for the 12 months PPR (and further 3 years pre-sale) for CGT reasons, do I need to notify the revenue of this? If so, how do I do this? Is there a specific form that needs to be filled?

Thank you in advance

There is never any need to nominate in favour of a property being used as your ONLY residence or your MAIN residence.

You only need to make a nomination if you are using more than one property as your home at the same time. Even then, nomination is only required if you want to nominate in favour of the property which is not being used as a MAIN home.

If you are using more than one property as your home, and there is any doubt as to which one will be considered as being your main residence, you should put this beyond any doubt by making a nomination by writing a letter to your tax office stating which property is to be considered to be your main residence for CGT PPR relief purposes. There is no specific form to make a nomination. A simple letter is sufficient. A nomination is to be made within 2 years of having the use of more than one property as your home.

Where one has use of more than one property as a home, it is generally best to make a nomination in favour of the property which is NOT the main residence. This could then be followed up a week later by a variation back in favour of the actual main residence. Any variation of an original nomination can normally be back-dated upto 2 years. The short period of nomination in favour of the 2nd home, even for a week, will bag for good the PPR exemption in favour of the final 3 years ownership of that property, not to mention the letting relief which could potentially be as much again as the PPR relief.

Ramnik

[Worldlife]

For the last seven years we have made a profit on our rental letting that has been taxed a year in arrears against other PAYE pension income with the two tax offices dealing with the shared income working in agreement.

In the last tax year we made a loss. One tax office is now allowing that loss to be offset against other income - the other tax office is stating that the loss should be rolled forward to next year.

Do the tax offices have discretion as to how they offset these losses?

For PAYE codings should losses be treated differently to profits?

[Tax Accountant]

For the last seven years we have made a profit on our rental letting that has been taxed a year in arrears against other PAYE pension income with the two tax offices dealing with the shared income working in agreement.

In the last tax year we made a loss. One tax office is now allowing that loss to be offset against other income - the other tax office is stating that the loss should be rolled forward to next year.

Do the tax offices have discretion as to how they offset these losses?

For PAYE codings should losses be treated differently to profits?

Some tax offices take a more practical approach and ignore technicalities. It is quite often the individual officers who make the decision to go down this route and it is not necessarily the tax offices making such policies.

Technically rental income losses can only be carried forward and set off against next available profits until the losses are fully used up. This is regardless of whether the tax is collected by adjustment against PAYE coding notices.

Turning to how your rental income is taxed, I would imagine that it is taxed on actual basis but any tax due is simply adjusted against subsequent year's PAYE coding. But does this coding notice also not include an estimate of current year's rental income profit? If so, your coding notice should include both last year's loss and an estimate of current year's profit.

Ramnik

[Worldlife]

Thanks for your guidance Ramnik.....

I will certainly make sure the bloody minded tax inspector who has cocked up the system that has been working well for years is screwed for every possible expense and loss against future profits from our renting.

Guess it is easier to collect tax backdated a year against a PAYE code than to rebate tax for losses :)

....... so perhaps there should be no ill feelings!!!

[Tax Accountant]

Thanks for your guidance Ramnik.....

I will certainly make sure the bloody minded tax inspector who has cocked up the system that has been working well for years is screwed for every possible expense and loss against future profits from our renting.

Guess it is easier to collect tax backdated a year against a PAYE code than to rebate tax for losses :)

....... so perhaps there should be no ill feelings!!!

I am not clear how the tax on rental is accounted for. Do you send in your SA Tax return and do you receive tax calculations?

What exactly is being adjusted in your PAYE code?

Is this the underpayment according to the tax calculations?

Or is this the actual rental income estimate for the current year but based on your actual rental income for the previous year?

Or is it both of the above?

Ramnik

[Worldlife]

Neither my wife or I have opted for self assessment.

For several years we have completed short tax returns but have always forwarded a breakdown of the income on a full property income return. Guess we don't have to do this as the total property income is less than £15,000 per annum.

Until now the tax we have both paid on profits via PAYE is based on actual profit figures a year in arrears.

My tax office have written that they don't care a toss about the arrangements by my wife's tax office (or words to that effect! ) The whole issue arose because my coding was increased as a result of going above a minimum income bracket but the amount of money involved here was less than the amount involved in the property losses. i.e I was expecting my coding to be reduced rather than increased.

My wife's coding has been reduced to take into account the rental income losses.

Thanks for your interest Ramnik

[Tax Accountant]

Neither my wife or I have opted for self assessment.

For several years we have completed short tax returns but have always forwarded a breakdown of the income on a full property income return. Guess we don't have to do this as the total property income is less than £15,000 per annum.

Until now the tax we have both paid on profits via PAYE is based on actual profit figures a year in arrears.

My tax office have written that they don't care a toss about the arrangements by my wife's tax office (or words to that effect! ) The whole issue arose because my coding was increased as a result of going above a minimum income bracket but the amount of money involved here was less than the amount involved in the property losses. i.e I was expecting my coding to be reduced rather than increased.

My wife's coding has been reduced to take into account the rental income losses.

Thanks for your interest Ramnik

OK.
You are welcome.

Ramnik