Is rent deduction taxable for H and W?

Rental expenses in sole trader accounts

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H and W clients have an outbuilding used for two businesses - an office for a Ltd Co and a shop which is W's sole trade.

Ltd Co pays rent for the office to H and W which is declared on their tax returns.

The shop does not pay rent but this year the Ltd Co is loss making and the shop is profit making.  If rent is claimed as an allowable expense in the accounts of the sole trade (and W's tax return) then is there a corresponding pick up for rental income on H and W's tax return?

If not then is there not a tax deduction with no pick up?

Replies (8)

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By johngroganjga
10th May 2016 21:31

Yes of course. Why would there not be?

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Replying to johngroganjga:
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By Matrix
10th May 2016 22:03

Thanks for confirming. I don't have many sole trader clients and the few I have either claim simplified expenses or if actual rent then it is covered by expenses.

So to be clear, if you were claiming actual rent in sole trader accounts then you would also complete the rental income and expenses in the relevant section? And you would also do this on the spouse's tax return if the property was joint?

This is what I would do for Ltd Co clients (well, the organised ones!) but was having a bit of a blond moment when applying to a sole trader.

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By Paul Soper
11th May 2016 00:03

"If rent is claimed as an allowable expense in the accounts of the sole trade (and W's tax return) then is there a corresponding pick up for rental income on H and W's tax return?" You state that the Wife's shop does not pay rent, which makes some sense because the wife is a 50% owner of the property. The Wife cannot pay rent to herself so any element of payment in that respect is irrelevant but she can pay rent to her husband. That would be deductible in the business accounts but would be taxable as property income in his hands.

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Replying to Paulsoper:
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By Matrix
11th May 2016 15:14

Thanks Paul. No rent will be paid (so no physical payment but drawings could be split between rent and drawings if necessary). I am just looking to adjust the taxable profits by claiming rent as an allowable expense. So you are saying there is no pick up in her tax return since she can't pay rent to herself but there would be in her husband's tax return?

If the rent was £10k and say the expenses were £8k and the property is joint then her rental profit of £1k is excluded from rental income in her tax return but H's £1k is included?

Whereas if the Ltd Co paid rent then the rental profit would be included for both?

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Replying to Matrix:
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By Jo Nokes
11th May 2016 15:26

I think you misinterpreted Paul's comment. I believe he meant that you could include rent as a cost in the sole trade accounts to the extent that it was reported in H's tax return as income, ie income and expense balanced out. Your way would mean £2k cost but only £1k income, which would be incorrect

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By Matrix
11th May 2016 16:17

Thanks so what do I do with the other £1k?

If the living costs attributable to the shop were £8k then how are these treated in H and W's tax returns?

If rent is £8k:

W - £8k expense against sole trader business, no figures in rental income

H - £4k rental income, £4k rental expenses

If rent is £10k:

W - £10k expense against sole trader business, no figures in rental income - or is this only £9k since she can only deduct the costs?

H - £5k rental income, £4k rental expenses

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Replying to Matrix:
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By Jo Nokes
11th May 2016 16:44

I assume the expenses you mention are actually paid out by H & W. In which case, i would treat H and W the same, and so the wife reports income from herself (50%), and the expenses. In her return, the rent expense contras to the rental income. No imbalance then. Or if you prefer, ignore half the rent, and just have H report his half

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By Matrix
11th May 2016 19:22

Thanks but what is the technical answer?

Yes assume that £8k is the actual share of household bills attributable to the shop.

Can she deduct more than £8k? Should the rent be split between H and W's tax returns or just H's share on H's?

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