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Property business maintenance costs

Property business maintenance costs

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Property business (Limited company) builds block of flats, sells some and rents the remaining flats.

The company receives income to fund future repair costs from the flats sold, say £200 per flat per year, to cover External decoration every 5 years.

This income received from flats that were sold is banked and carried forward to account for against the expense when incurred.

How should the relevant amount due in respect of the flats that are still owned by the company be treated, both from an accounts and tax point of view?

( Note no money changes hands for this )

Should a provision be created for the liability to build up an amount at the same rate as the income from the sold flats ? And if so will this be allowable for tax relief ?

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Euan's picture
By Euan MacLennan
21st Sep 2012 15:06

Service charge

The income from the "owners" (actually tenants on long leaseholds) must be accounted for in service charge accounts in accordance with the Landlord & Tenant Acts.

If the short-term tenants are not required to pay service charges, the costs of communal services (say, external decoration in due course) will presumably be apportioned between the company in respect of the short-term lets and the service charge funds in respect of the long leaseholders.

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By TTID
21st Sep 2012 21:33

Thanks Euan,

Yes for the short term lets the landlords (the limited company that originally built the properties) are responsible for the costs of communal services at the same rate as the long leaseholders. But how should the company liability (re short term lets) be accounted for in the limited company accounts for future costs (say external decoration once every 5 years) ?

Should these be provided for on an annual basis as a provision for future costs (Dr Repairs Cr Liabilities) and if so are these allowable for corporation tax relief?

Or are they disallowed until such time as the actual expenditure is paid?

Or should they merely be accounted for at the time the expenditure actually happens?

Thanks in advance.

 

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Euan's picture
By Euan MacLennan
24th Sep 2012 13:45

No provision

Unless the landlord has a legal obligation to pay service charges each year in respect of the short-term lets, you cannot include an annual provision (or at least, not claim tax relief on any provision made) in the landlord's accounts.  The landlord will get tax relief on any repair costs when they are incurred.

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