When Should Property Letting become a 'business'

When Should Property Letting become a 'business'

Didn't find your answer?

Hi All

A Client of mine has been building a property portfolio to provide him with rental income. 

He now has aquired 12 properties (2 are joint owned), all are mortgaged. The income he receives from these properties is his primary source of income.

While completing his 2013 accounts, it became obvious that there are a number of expences that cannot be attributed to a specific property but are incurred in the 'general' management of the 'estate'. The largest of these are two 'cash' loans borrowed from private individuals, paying a market rate of interest, the funds of whch have been used across the 'estate' to help fund mortgage deposits, refurbishment work etc etc. 

Apart from the significant work in preparing 12 rental property accounts, and the subsequent reporting of them on SA100, I wonder if this income should be viewed as a business and, therefore, reported under Schedule D tax rather than Schedule A? This would certainly make claiming the 'general expences' much easier. 

The down side of this would be that the Client could be liable for Class 4 NI and ideally this could all be wrapped up in a Ltd Company but the properties are all in personal names so would prove difficult.

I'm sure this issue has cropped up with a number of Clients out there, if anyone has any feedback on how they handled this question, I would love to hear their thoughts.

Thanks in advance

Replies (4)

Please login or register to join the discussion.

avatar
By Cloudcounter
05th Mar 2014 10:54

From the start

Schedule A and schedule D were abolished some years ago - probably when self assessment was introduced (1996?). Letting of property is now regarded as a business (but not a trade)  and general expenses (even bank overdraft interest) are allowable, subject to the wholly and exclusively rule.  Class 4 NIC wouldn't normally apply unless the business provides a range of services over and above rental.of premises

Thanks (0)
Replying to mwebber:
avatar
By simonmercer
05th Mar 2014 13:01

Thanks for the reply, apologies for the old terminology however, income from property was still referred to as 'Schedule A' when I left HMRC in 2007. My question regarding this activity stems from comments made during a recent HMRC enquiry into a CG issue where the Client had been buying houses, doing them up and then reselling them. The Inspector suggested this could be considered as a trade rather than a simple CG issue.

As a Practice I tend to steer away from property rental issues hence the clarification. 

Thanks for the feedback, it clarifies that dealing with the entire estate as one business is the way forward when approaching this.

 

SM

Thanks (0)
By ireallyshouldknowthisbut
05th Mar 2014 11:00

.

I think you are getting in a bit of a muddle.

On what basis are you drawing up the allowable interest so as to exclude the additional loans?

And whilst I would draw up 12 rental accounts myself for management purposes if nothing else, there is no requirement to file anything other than aggregated accounts on your SA100.

 

Thanks (1)
Replying to Ruddles:
avatar
By simonmercer
05th Mar 2014 13:13

Thanks for the feedback, as said in above reply, I was trying to clarify the approach in my mid, as we try and avoid property rental clients as a Practice.

I will approach the issue with a consolidation of the numerous individual acocunts.

Thx

Thanks (0)