How to balance personal losses vs company profits?

I have personal property losses but have to pay company property profits, how can I rebalance this?

Didn't find your answer?

I have invested personally in Buy To Let (BTL) properties over the last 10 years, and due to heavy expenditure on refurbishments, still have £70k in carried forward losses to offset against personal rental income.

Additionally, I've accurred £60k in carried forward unused residential finance costs (the 20% allowance on BTL mortgage interest, which you can't use if you have carried forward losses).

These 2 losses total £130k.

I make approx £30k personal profit per year from rental property, so it will take 5+ years to consume all my losses.

Great, but: I also have a solely owned LtdCo that has invested in property, however all its losses from refurbs have been used up. It will make about £50k profit this year from property, but also from several other non-property income streams, on which I'll have to pay nearly £10k corporation tax.

I know it's a separate legal entity but it's annoying to be paying corporation tax on profits when I'm having to carry over personal property losses.

Is there a legitimate way to rebalance this? E.g. Employment Income Manual 00730 says that:

> "it is possible for an employee or office holder to tender for work with their employer outside their normal duties, in circumstances where that individual will not be providing service as an employee or office holder but as a self-employed contractor."

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim007...

I'm quite sure I can find all sorts of ways to provide chargeable services to my LtdCo in order to invoice my LtdCo, reducing its profit and increasing my own personal income: IT consultancy; Tax advice; Rent for office space in my home for example!

Is that legit? Or is there another, better way?

Note, I'm not trying to dodge tax, over the next 10 years say, the total tax take is likely to be the same, but I'd rather the tax was pushed to later years, partly because I don't trust a later gov't not to take away the carried forward unused residential finance costs.

Your thoughts and wisdom are appreciated.

Replies (24)

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By David Ex
20th Nov 2023 17:06

If you’re going to pay the same amount of tax over time, I’d say it was pointless doing anything complicated. With hindsight, having property held both personally and in a company possibly wasn’t the best idea. (I wasn’t clear if the company is also carrying on a rental business.)

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Replying to David Ex:
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By GandC
22nd Nov 2023 12:58

Thanks for your reply. The reason for having property in both personal and LtdCo names, was to use up the basic rate band personally, then put any excess income into a LtdCo. This is a consequence of the Section 24 "Landlord Tax".

Hence the LtdCo has some rental property as well as some other non-property related income.

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RLI
By lionofludesch
20th Nov 2023 17:08

Have you thought about paying yourself a salary?

Why do you want to start some sort of consultancy business, with the risk that HMRC will challenge deductibility ?

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Replying to lionofludesch:
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By GandC
22nd Nov 2023 13:53

Paying a salary would be a simple solution, but would increase taxes due to NICs. I'm happy for this to be a tax neutral solution, albeit delaying the taxes.

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By David Ex
20th Nov 2023 17:13

PS I’m assuming the refurbishments are correctly categorised as revenue costs.

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Replying to David Ex:
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By GandC
22nd Nov 2023 13:54

Some were revenue costs, some capital costs. You can only claim revenue costs for refurbishments where you are replacing or repairing something already there. Creating a new ensuite for example is a capital cost.

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paddle steamer
By DJKL
20th Nov 2023 17:14

How does this billing from individual to company use up the personal rental losses etc?

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Replying to DJKL:
RLI
By lionofludesch
20th Nov 2023 17:24

DJKL wrote:

How does this billing from individual to company use up the personal rental losses etc?

It won't use up brought forward losses.

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Replying to lionofludesch:
paddle steamer
By DJKL
20th Nov 2023 17:26

It is now profitable we are told (£30k pa) so struggling to see how what OP is proposing helps.

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Replying to DJKL:
RLI
By lionofludesch
20th Nov 2023 17:47

DJKL wrote:

It is now profitable we are told (£30k pa) so struggling to see how what OP is proposing helps.

Fair point. I missed that bit.

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Replying to DJKL:
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By GandC
22nd Nov 2023 14:32

I was thinking, for example, billing my LtdCo for the office space I rent it out of my personal home. That's rental income which can be taken "tax free" as it can be used to offset some of the losses, no?

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By Truthsayer
21st Nov 2023 09:12

'due to heavy expenditure on refurbishments, still have £70k in carried forward losses'....I see a big red flag. That sounds like capital improvements, not revenue expenditure. It is something you should pay an accountant to review, as well as to answer your questions here.

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Replying to Truthsayer:
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By GandC
22nd Nov 2023 14:37

Good point, however I've done a "What was capital and what was revenue" review of the expenditure, and had that signed off by my accountant.

Note that this figure represents years of putting my own money into renovating often derelict houses that needed completely stripping back to brick to replace everything in the house with new. Re-wiring, re-plumbing, re-plastering, replacing the rotten kitchen etc, are all revenue expenses. Adding a new ensuite was a capital expense.

I do intend on having this conversation with my accountant, but I prefer to do my research first so I can have an intelligent conversation with my accountant, rather than just taking 1 person's word for it, as that's got me into trouble in the past.

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Replying to GandC:
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By Leywood
22nd Nov 2023 15:20

Asking on a forum is not doing your own research.

Asking a bunch of strangers is disrespectful to your Accountant.

If of course you dont trust your Accountant, who lets face it will have the answers to all the questions already asked, plus the ones that folk on here havent yet asked, then surely you should get a 2nd paid opinion.

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Replying to Leywood:
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By GandC
22nd Nov 2023 23:34

I don't think there's a single thing in your last comment that I agree with.

Asking on internet forums is a primary method of learning now. I've already learnt new things from this one question.

I honestly couldn't give a t0ss if my accountant feels disrespected, I'm the one responsible for my taxes, I'm the one that will pay any penalties and interest on mis-filed taxes, therefore it's incumbent on me to know enough to have an intelligent conversation with him about my tax affairs.

The days of simply doing what you are told and saying: "Yes Mr Accountant, whatever you say Mr Accountant" are long gone. Besides, I have no intention of mentioning that I've posted this question, so his delicate feelings won't be hurt by it.

I don't trust any accountant. Are you saying that you're perfect, and you've given 100% correct and complete advice to every client you've ever had, in every case, without ever making an error, omission, or oversight??

I've been running my own businesses for 23 years and have changed accountant several times, because to be honest, mistakes get made, or juniors get brought in who don't know what's going on or the best approach to take.

At the end of the day, the buck stops with me, so I try to be as informed as possible.

If you're not inclined to pitch in Leywood, that's your right of course, but I'm sure you've got better things to do than whinge on about my question.

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Replying to GandC:
Stepurhan
By stepurhan
23rd Nov 2023 13:44

GandC wrote:

Asking on internet forums is a primary method of learning now. I've already learnt new things from this one question.

Except without background accounting knowledge, there is a strong chance that you will misunderstand advice, thus making things worse for yourself.
Quote:
it's incumbent on me to know enough to have an intelligent conversation with him about my tax affairs.

The days of simply doing what you are told and saying: "Yes Mr Accountant, whatever you say Mr Accountant" are long gone.

If your accountant isn't willing to explain their bespoke advice to you, then they might not be a good accountant. "Educating" yourself is not going to resolve that because, as I said above, it is extremely likely you will end up arguing with them because you misunderstood something you found online.
Quote:

I don't trust any accountant. Are you saying that you're perfect, and you've given 100% correct and complete advice to every client you've ever had, in every case, without ever making an error, omission, or oversight??

Have you never made a mistake? To err is human after all.

But the fact human accountants can make mistakes is irrelevant. Do you in-depth research on health and dentistry? Do you study construction when you want work done on your house? If you never rely on any expert, your life must be exhausting!

Given your attitude, I suspect that any accountants you have left have breathed a sigh of relief to be rid of you. Maybe burning through accountants is why you have ended up with one that could not clearly explain the pitfalls of your current situation.

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Replying to stepurhan:
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By GandC
24th Nov 2023 16:01

My accountant has the background knowledge, I'm not expecting to be an expert, but to know enough to have a sensible conversation about the options, he can explain the pros and cons as they pertain to my matters.

I would never argue with my accountant, that definitely would be rude, but I don't think it's unreasonable to be able to ask: "Have you considered X?" or "What would the implication of Y be?" or "Are you sure that's right, because I was under the impression that Z applied here?"

I stay with accountants for years, until they make a mistake that costs me money. Such as the only time I've had a fine from HMRC, a situation that was entirely my accountant's fault. His mistake but my cost.

The last accountant I left made mistakes on my tax returns 3 years in a row. The last one, he'd somehow managed to inflate my salary to the point it would have cost me £20k in extra income tax and NICs! If I didn't know enough to be able to challenge him about it, that would have cost me dearly.

You may think that making mistakes is irrelevant, after all, it's just numbers on a spreadsheet, right? Well no actually, it's pounds in my pocket, pounds that one day will go to my children, so the numbers need to be right. When you make a mistake, that directly affects my kids.

And yes, I do do my research into other areas too, e.g. which filling material I might want my dentist to use is important, it's my mouth that's got to carry it around after all; and yes I do ask builders how they're going to do a job and what materials they're going to use, I've got to live with the results if their work is shoddy or they use inferior materials.

I'm sorry you think the acquisition of knowledge is "exhausting". Every day's a learning day. The day I stop learning, is the day I start dying.

As for my attitude, my attitude is simple: I'm responsible for my taxes, so I need to know roughly what's going on, to the point I can point at a number on my accounts and say: "That's not right, I think it should be this, and here's why." I'm sorry you feel that's so unreasonable.

Maybe a few of my past accountants have breathed a sigh of relief, but when I've apologised for asking so many questions, I've had a couple tell me to my face that it's refreshing to have a client that's actually interested in the numbers and where they come from, rather than just waiving them through without any thought.

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Replying to GandC:
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By Tax Dragon
24th Nov 2023 16:55

Fwiw I agree with much of what you say. Your tax is your responsibility.

On the Law Shipping v Rhodesia Railways point that arose a few days ago but appears lower down this thread, there's useful (and highly reasonable) HMRC guidance in BIM35450. The summary, starting "the conclusion to be drawn" is worth reading carefully.

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Replying to GandC:
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By David Ex
22nd Nov 2023 18:47

GandC wrote:

Note that this figure represents years of putting my own money into renovating often derelict houses that needed completely stripping back to brick to replace everything in the house with new. Re-wiring, re-plumbing, re-plastering, replacing the rotten kitchen etc, are all revenue expenses.

Can’t believe I’ve been doing it wrong all these years. Has your accountant read the tax case The Law Shipping Co Ltd v CIR [1923] 12TC621 ?

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Replying to David Ex:
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By GandC
22nd Nov 2023 23:44

Thanks David, that's a very interesting case.

Intriguingly Rhodesia Railways Ltd v Collector of Income Tax, Bechuanaland Protectorate [1933] AC 368 seems to contradict it.

I guess it comes down to what's considered "abnormally heavy" repairs.

In the refurb I mentioned above, the roof of the property had failed, and been left in that state for some time, and the house had been raided for its copper piping and cabling, which is why everything needed replacing. I guess it would come down to arguing about what was revenue and what was capital.

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Replying to GandC:
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By Tax Dragon
23rd Nov 2023 06:51

If the wear and tear in the Rhodesia Railways Ltd case occurred during the company's ownership of the line, then the question would not be whether the repairs were "abnormally heavy", but simply whether the replacement track was an improvement to the replaced track.

In Law Shipping, the company bought something broken (and therefore cheap) and fixed it.

The cases do not contradict: the different conclusions reflect different facts.

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Replying to GandC:
paddle steamer
By DJKL
23rd Nov 2023 01:02

So if bought derelict, and price paid reflects that condition, might costs of rewiring etc perhaps be considered capital rather than revenue? (Famous Law Shipping/Odeon discussions etc)

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By adam.arca
21st Nov 2023 13:24

The OP's issue is (as all accountants understand) a known problem of dividing trading or property income into separate sources. This should have been discussed with his accountant at the start (not trying to be wise after the event but there's no way to sugar coat that one).

The OP could *maybe* fiddle around the edges as he suggests but, fundamentally,
The way for the OP to look at this is that all structures have pluses and minuses. He's enjoying the benefit of a lower tax rate on the company profits (a plus) but now at the expense of a lack of offsetability (a minus). Rough with the smooth and all that.

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Replying to adam.arca:
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By GandC
22nd Nov 2023 14:43

A good point, well made.

As you have pointed out, there are many good reasons to split the investments personally and via a LtdCo, but there are some downsides too. All in all, I don't regret my decision and would do the same again.

That's not to say however that I shouldn't try to make the best of whatever position I find myself in, which is why I'm asking for the collective wisdom of the AccountingWeb hive mind about it here.

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