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Should a cost recovery be disclosed as income?

Does a cost recovery affect expense allowance and hence the net taxable income

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A client receives rental income of £6K pa and is entitled to claim the expense allowance of £1K. The client pays an insurance premium for the property which is recoverable in full from the tenant. There is therefore no "net" expense incurred. However, should the cost still be considered to have been part of the £1K expense allowance being claimed and the amount recovered disclosed as additional income or can the whole transaction be ignored? The net effect is clearly that the insurance cost may, or may not, be taxable.

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By lionofludesch
04th Sep 2019 16:16

Depends on the wording of the contract. If the contract for the insurance is between landlord and insurer (which I suspect is the case), the recovery of the insurance is extra rent and the insurance premium is an expense.

If it says the tenant has to insure the property and the landlord arranges it for him, then the entries can be netted off.

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Replying to lionofludesch:
By M G Weemys
06th Sep 2019 13:40

Thanks for the replies with which I agree and seems both logical and confirms my own thoughts. I guess that the matter could be satisfactorily resolved (and no negative tax consequence) in the future if the tenant took out the policy themselves.

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Replying to M G Weemys:
By lionofludesch
06th Sep 2019 15:54

You reckon ?

The landlord then has a property which he hopes is insured but can't be sure. On the up side, he has an extra £50 or so in his bank account to rebuild the property if it burns down.

It's a tax saving too far for me.

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By Duggimon
05th Sep 2019 13:44

Agree with the above, just wanted to add that every landlord I've acted for who has received payments from tenants for insurance has been in the former camp rather than the latter, it's not impossible but is pretty unlikely that it isn't income.

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