Tax treatment of service charges paid

Tax treatment of service charges paid

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Are service charges paid allowable against rental income?    The service charges are received by a property management  company which holds the fund on trust under s 42 Landlord & Tenant Act 1987 and is effectively exempt from tax;  I seem to recall reading that the service charges paid by a landlord in this situation are not allowable (even though the underlying expenditure would be).  if you have come across this can you please confirm this is correct or otherwise?

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Euan's picture
By Euan MacLennan
22nd Feb 2012 11:38

I don't understand the question.

Service charges are paid by the tenants or leaseholders to the landlord or property management company.  What rental income would the tenants or leaseholders have?

Could you clarify?

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Replying to TheLambtonWorm:
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By David_Lewis
22nd Feb 2012 23:36

tax treatment of service charges
Thanks for asking for clarification.

It is a furnished letting, where the tenant lets the property to someone else, but pays the service charge.

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By David_Lewis
23rd Feb 2012 19:30

Furnished lettings - Tax treatment of service charges paid

I wonder if someone has come across the above situation - any thoughts?

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By Chris Smail
24th Feb 2012 00:34

Why on earth not?

Sotty but I do not understand why you think that they are not allowable.

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By David_Lewis
24th Feb 2012 07:17

Because of the tax treatment in the hands of the recipient
The service charges are received by a property management co, but as trustee for the lessees under S42 of the Landlord & Tenant Act. The receipt of service charges by the trust is effectively exempt from tax; so I've a feeling that this is mirrored by service charges paid (by a lessee who lets their property) being not allowable.

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Euan's picture
By Euan MacLennan
24th Feb 2012 11:05

What has the recipient got to do with it?

The intermediate landlord pays the service charges - it does not matter what the management company does with them - and is entitled to a deduction for the expense he has incurred against his letting income.

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