Tax treatment of service charges paid

Posted by eddybee PM | on Tue, 21/02/2012 - 23:25 371 6 comments | report

Are service charges paid allowable against rental income? The service charges are received by a property management company which holds the fund on trust under s 42 Landlord & Tenant Act 1987 and is effectively exempt from tax; I seem to recall reading that the service charges paid by a landlord in this situation are not allowable (even though the underlying expenditure would be). if you have come across this can you please confirm this is correct or otherwise?

Comments

I don't understand the question.

Euan MacLennan | Wed, 22/02/2012 - 11:38 | Permalink

Service charges are paid by the tenants or leaseholders to the landlord or property management company. What rental income would the tenants or leaseholders have?

Could you clarify?

tax treatment of service charges

eddybee | Wed, 22/02/2012 - 23:36 | Permalink

Thanks for asking for clarification.

It is a furnished letting, where the tenant lets the property to someone else, but pays the service charge.

Furnished lettings - Tax treatment of service charges paid

eddybee | Thu, 23/02/2012 - 19:30 | Permalink

I wonder if someone has come across the above situation - any thoughts?

Why on earth not?

Chris Smail | Fri, 24/02/2012 - 00:34 | Permalink

Sotty but I do not understand why you think that they are not allowable.

Because of the tax treatment in the hands of the recipient

eddybee | Fri, 24/02/2012 - 07:17 | Permalink

The service charges are received by a property management co, but as trustee for the lessees under S42 of the Landlord & Tenant Act. The receipt of service charges by the trust is effectively exempt from tax; so I've a feeling that this is mirrored by service charges paid (by a lessee who lets their property) being not allowable.

What has the recipient got to do with it?

Euan MacLennan | Fri, 24/02/2012 - 11:05 | Permalink

The intermediate landlord pays the service charges - it does not matter what the management company does with them - and is entitled to a deduction for the expense he has incurred against his letting income.