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Property Rental and Partnership Accounts

Hello, I'm not sure if many people are around, and those who are around are probably very busy. But it's worth a try!

I have a client who has a small business that is not connected to property in any way. He also has rental income from renting out a room in his house, and he's pushing me to include the (modest) rental income in his trading accounts. His main business is registered for the Flat Rate VAT Scheme. He would also like to claim Rent-A-Room relief on his rental income.

I have my own view on whether this is possible, but would appreciate other views. I have used partnership arrangements for rental income before (something that was accepted by a Tax Inspector at the time), and have seen at least one other accountant using partnerships to allocate rental income between a husband and wife.

Is it possible to include the rental income in the partnership accounts, utilise Rent-A-Room relief and not have to worry about paying Flat Rate VAT on the rental income?


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By ACDWebb
28th Dec 2012 10:28

What exactly does he expect to achive by doing so?

It in not obviously a partnership asset, and even if it were, and the rental was included, it would still need to be stripped out in the tax adjusted profit calculation and entered as property income on the Full Partnership pages leaving him back at square one.

If it qualifies for Rent A Room, and presumably he must be completing personal returns to report the partnership share and Self Asses, why fanny around putting it through the business. Just enter it as Rent A Room on the personal return property pages - or am I missing something?

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By neileg
28th Dec 2012 11:31

I agree with ACDWeb but would add:

Not clear whether the main trade is a partnership or a sole trader.

If the trading business is VAT registered and the property is in the same names as the trade (partnership or sole trader) then the rent needs to be included in the FRS turnover regardless of the accounting treatment. Obviously the property is a domestic property and normally exempt for VAT but all income needs to be included under FRS. It would be better if the property was not in the same names as the trade and so treated as exempt domestic rental.

There is an argument to be had with HMRC if the trade is a partnership and the property is owned by the partners since HMRC don’t regard joint owners of property as partners but it would be better to avoid the argument if possible.

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By mabzden
28th Dec 2012 14:21

Thank you for your comments. The trade is a partnership, and the property is owned by one of the partners in his own name.

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28th Dec 2012 14:43

VAT on rents!

FRS VAT should be charged on total business income incl. exempt rents.  Property lettings pages should be prepared as usual, and self-employment pages should include FRS VAT on rents.

Presumably the wife is self-employed and on higher FRS %, which is why she in not getting all rent-a-room rents.

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28th Dec 2012 16:12


Rent-aroom relief does not apply to partnerships. Only individuals can claim the relief, so it would be lost if it were included in the partnership accounts.



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By ACDWebb
28th Dec 2012 19:11

Has he given you ANY reason

why he thinks putting it through the partnership will be of any assistance to him bearing in mind that it is going to cost him the need to charge VAT under FRS and probably a loss of Rent A Room?

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By neileg
31st Dec 2012 09:45

Let's be clear about this

The tax status of these rents isn’t affected by what you do in the accounts. You’ve said that the property is in the sole name of one of the partners so it doesn’t fall into the pool of income for VAT purposes, neither does it form part of the partnership trading profit for income tax. FRS does not apply and rent a room relief is unaffected.

The downside of showing the rents in the partnership accounts is that it will confuse the reader of the accounts, and that includes HMRC. You may well end up in a needless argument for either VAT or income tax determination and for me that is a powerful argument for keeping it out.

Presumably the idea behind having the rents in the accounts is that it will ‘beef up’ the apparent trading performance.

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31st Dec 2012 13:46


VAT under FRS must be applied to all sales of the registered person incl. exempt sales such as rents.  Why not look it up at

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By neileg
31st Dec 2012 13:56


Novakova wrote:

VAT under FRS must be applied to all sales of the registered person incl. exempt sales such as rents.

Quite right. In this case it is the partnership that is registered, not the individual partners. Only income that pertains to the partnership falls into FRS and the rent is not that of the partnership. That's why the rent is excluded.
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