Schedule A losses

Schedule A losses

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Hello,

I would be grateful if you could help me with some Schedule A loss relief.

I understand that normally Sch A losses are just carried forward until utilised against Sch A income. A client of mine has Sch A losses from his rental portfolio plus has a Furnished Holiday Let (FHL) which is profitable. I believe that under the new rules I can offset the Sch A loss against the FHL profits, is this correct?

Thanks

Replies (15)

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
03rd Aug 2015 20:28

Hi Saima

When you say his rental portfolio are these all residential lettings? If so, the answer would be no - you can't set the loss on the ordinary residential lettings portfolio against the profit on the furnished holiday let.

However, if some or all of the rental portfolio is comprised of commercial lettings and the loss is attributable to capital allowances then that loss can be set against the client's general income for the tax year in which the loss arose and any excess carried forward to be set off against the client's general income for the following tax year.

The client's general income would, of course, include the profit on the furnished holiday let.

This is very rare!

I am unaware of any new rules with regard to property loss set offs. Where did you hear this?

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By saima wahid
04th Aug 2015 08:57

Hello

A few year ago the FHL rules changed, I thought that since FHL income is now treated as Sch A income as oppose to Schd 1 income then Sch A losses were transferable.

Thanks

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By JamesAnd
04th Aug 2015 10:13

The changes in 2011 meant that FHL losses can no longer be set against other income and can only be used against future FHL profits.

Whilst this puts loss relief in line with sch A, I am not aware that sch A losses can now be set against FHL.

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By saima wahid
04th Aug 2015 10:37

Hello

My thoughts on the loss relief were really taken from the tax return UK Property Notes, which state for FHL:

"If you made a loss in 2013-14 or earlier years, put the amount in box 14.If you made a loss in another property business (not FHL) , you can include that loss in box 14."

Have I misunderstood this?

Thanks

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By JamesAnd
04th Aug 2015 10:56

Yes I think you have - there are only certain circumstances in which a schedule A loss can be set sideways - see notes for box 42.

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By Steve Kesby
04th Aug 2015 11:21

The losses can be offset

The properties (assuming that they are all in the UK or all not in the UK) are all part of the same property business in the first instance.

The first step, applying the law, is to calculate on profit or one loss for the whole property business. This does not involve the making of a claim for sideways relief.

The layout of the tax return is HMRC's fiction.

The law then only requires the FHL and non-FHL elements to be separated if losses are to be used outside the property business or carried forward, or if capital allowances are claimed in relation to the FHLs (as such CAs cannot be set against the non-FHL part). The profits/losses also need to be separately identified

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By saima wahid
04th Aug 2015 11:27

Hello James

Thanks for that, I do appreciate your help in this matter. You clearly have a lot of experience in this area.

So what type of loss from another property business (not FHL) can be offset against FHL profits?As implied by the Box 14 notes.

 

Thanks

 

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By JamesAnd
04th Aug 2015 11:52

As detailed in the notes for box 42.

I would also refer you to an article by Tax Insider - you can go to www.property-tax-portal.co.uk/article185 which provides a useful guide on the rules since the changes to FHL in 2011.

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By Steve Kesby
04th Aug 2015 12:11

Box 42...

... isn't relevant. There is no sideways claim being made in this situation.

Refer to the working sheet in the notes for box 43. The amount in box P in that working is the amount of non-FHL loss that can be set against the FHL profits in box 14.

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By saima wahid
04th Aug 2015 12:50

Thank you very much Steve.

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By Tim Vane
04th Aug 2015 12:55

I can't help thinking that if you don't know this stuff you should not really be advising these clients.Using losses efficiently is one of the key things an accountant does for a client and if your knowledge in not good you cannot be giving your clients the best advice. IMHO.

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By Montrose
04th Aug 2015 14:16

But watch out for partnerships

A little known elephant trap lies in property partnerships, whose profits and more importantly losses are ring-fenced even from other property income. Look at PIM 1030  and ITTOIA s859(2)

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By MBK
05th Aug 2015 12:19

@Montrose

Whilst you are correct, a true property partnership is a very rare animal. I've seen many clients who we've taken on having their property income incorrectly returned as partnership income. It is a very common mistake made by accountants who don't have a conceptual understanding of the difference between a property business and a property partnership.

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By Montrose
05th Aug 2015 12:50

Property partnerships again

I agree with MBK, as do HMRC, hence my reference to PIM 1030.

 

But property partnerships do exist, and also can  have unexpected IHT consequences. Where an interest in a property owning partnership is part of an individual's estate at death, that "chose in action" is what is   valued and included in the transfer at death, If the instalment provisions of IHTA s227 apply, no interest becomes payable on instalments until their due date. This follows from the fact that what the deceased owned was an interest in a business, not a company, so that the provisions of s234(1) are not disapplied by s234(2), which applies only to shares in a property owning company.

These rules do not apply to an interest in a property owning LLP - see IHTM 25094

 

 

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By tonyaustin
05th Aug 2015 16:56

HMRC manual states for FHLs

PIM 4120 Calculating Profits and Losses

A separate calculation is required The taxpayer needs to calculate the profit or loss arising from qualifying furnished holiday lettings separately from their other rental business profits and losses to see whether they can take advantage of the special rules. But any overall profit is included in the general rental business result; and so is any loss unless they use it separately against other income. The normal rules for calculating rental business profits should be used.

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