Can anyone point me in the direction of some reading on any implications (assuming there are any) of owning a second property and allowing someone else to live in it rent free please...
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Sorry Jenny not been on here for a couple of days, busy!
I don't know of any reading as such, but I would guess that the biggest implication is to do with Gifts with Reservation, which was brought in about 7 years ago and covers the scenario where parents used to gift their homes to their siblings and continue to live there. I think it was originally to avoid the Inheritance tax scenario, which isn't as much of an issue these days.
Thanks Nick. Mainly the issue was to do with renting out a home rent free, but from what I can find as long as it's a family member that seems to be ok to do.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
As long as they don't try and claim the running costs, mortgage interest etc as tax deductions in their tax return then I can't think if any other issues.
My understanding is you can't make a loss on a rented furnished property as you can only offset expenses against income, therefore no rent, no expenses.
Is that what you were looking for or am I missing the gist of the question?
Came across this from the HMRC "Property Rental Tool Kit"
Extract from item 17
17. If a property has been let rent free or at less than normal market rate has any expenditure been restricted accordingly?
Unless a normal market rate is charged for a property it is unlikely that the expenses of the property will be incurred wholly and exclusively for business purposes and should normally be excluded from or restricted in computing the rental profit or loss.
If the business lets a property below the market rate as opposed to providing it rent free they can deduct the expenses of that property up to the amount of rent received. As a result uncommercial lettings should not produce a loss for tax purposes. Any excess expenses cannot be set against profits from another rental property or carried forward to be used in a later year.
Ensure that all expenditure relating to any property let rent free or below the market rate is excluded from or restricted in the accounts appropriately. Ensure that, for tax purposes a loss is not produced for any uncommercially let property.
On a related note, am I right in thinking that a major disadvantage of transferring your privately owned rental property to your ltd co is that you'll be paying capital gains tax on the transfer (plus stamp duty), and then corporation tax should the Ltd co sell it at any point, so effectively two lots of tax on one property?
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
And further on this point, if you sold a second property, which may or may not be eligable for some PRR, you would still have to show the calculations on the tax return whether any tax was ultimately due or not?
I always have done before, but am dealing with a particularly difficult client and want to check.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
