Rent in v Rent out

Rent in v Rent out

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I'm pretty sure I know the answer to this one, but it just does not seem fair and equitable.

A client decides to rent out his London home and rent a property in Somerset for the main benefit of his three young children's education. He now communtes to London 4 days a week. As far as he is concerned the arrangement is cash flow nuetral, the rent received on his London home being almost equal to the rent paid on his Somerset home plus commuting costs.

I did warn him that tax would be payable on the rent received and no tax relief on the fares and the rent paid. I'm not sure be believes me, and even I think it does not sound right.

I would be obliged if anyone could confirm my interpretation of the tax implications, and probably delighted if I had got it wrong.

Replies (3)

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By mrme89
11th Jan 2015 18:03

The rent he pays is not wholly and exclusively for the purpose of the rental business. Therefore, the cost is not deductible against his rental income.

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By Paul D Utherone
11th Jan 2015 18:25

Where's the unfairness & inequity?

He's made a lifestyle choice that's neutral, presumably until the tax on the rent received is factored in.

As above the rent & fares paid are not a cost of the rental business (but personal choice) and will not be allowable against rent received.

You've warned him, so he cannot blame you when the tax bill arrives surely - though I bet he does.

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By paulhammett
11th Jan 2015 19:24

Without wishing to state the obvious
. . . . it is the profit on the rent received that is taxable, not the actual rent received.

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