H&W bought 3 properties with intention of reselling in the short term at a profit - clearly dealing and hence a trade - the profit was returned on a partnership return
1 prop sold 2 in stock at y/e 5 Apr 08
In year ended 5 Apr 09 market collapsed, no sales, just rent - but interest cost exceeded rent so loss arose
I intend to submit a nil partnership return and include the rental loss in the land and property pages where the loss will get relieved against other rental profits - is that correct?
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definitely not correct
rental losses can only be set aginst future rental profits. If the intention is to sell when the market improves I would report rental income but treat the interest as trading loss of the partnership. This will enable the trading loss (which includes accountancy as well) to be set against rental income and and any of the loss unused that way to be set against trading profit of year 2007/8.
It's a mixture!
Hi Nick
Actually the treatment is a mixture. The partnership will have a rental business in respect of the let surplus trading stock. Revenue expenses of the lettings business (which would include interest to the extent that the loan was used to purchase/enhance the let properties) must be deducted, in the first instance, from the rents. If there is a surplus, it's taxable as rental income profits. If expenses exceed rents, the rents reduce to nil and the unused expenses are expenses of the property developing trade - in this case creating a trading loss which can be relieved in the usual way. It is a win-win situation really.
Revenue guidance on this is here:
http://www.hmrc.gov.uk/manuals/pimmanual/PIM4300.htm
Oh, and partnership rental losses cannot be offset against individual partners’ rental income or vice versa. Rental businesses carried on in separate legal capacities remain separate for tax purposes. In this case, it's academic as trading loss relief can be obtained for the excess expenses.
See - you should have asked me first!
Speak soon!
Cathy