property dealing versus investment

property dealing versus investment

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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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By geoffwolf
04th Sep 2009 11:21

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.

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By nick farrow
04th Sep 2009 14:44

thanks Geoff - I see I omitted a couple of things which I have n

Rental losses may be set against other rental profits in the same year - so when I referred to setting the partnership losses against other profits I meant other rental profits of the H&W in the same year.

Of course I agree that a trading loss would be more valuable so in the pages of the P'ship return I will include land and property pages for just the rent and enter the interest & accountancy as trading expenses in the trading P&L?

very interesting - I will have to do something to get the balance sheet to agree

 

 

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By cathygrimmer
15th Sep 2009 13:14

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

[email protected]

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