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  • Tax

    Offset from rent - allowed twice?

    The management company of a house with 4 flats, had paid money for communal works (money from the 4 owners) - they paid a surveyor who then paid the building company - the money has been lost* between the surveyor and building company (*one of these two has provided the wrong bank details).

    If the four of us have to pay again (7 grand each) - Can I offset this as a deductable cost, from rent ...twice (IE again next year)? -Its a cost that our lawyer is looking to sort out, but may not be able to, as the building company may look to liquidate the freehold of the house (thats the threat anyway).

    Its a cost that the lawyer says we shouldn't have to pay, but may do (again), in order to prevent the worst from happening.

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    Because you are paying money does not mean it is tax deductible against income. Firstly does it relates wholly and exclusively to a business (eg rental business); secondly is it capital or revenue. It sounds like a lot of money for it to be revenue. Are you sure the works are not of a capital nature. If it is hefty repairs then ok but you need decide that its a revenue cost before it is income tax deductible.

    Then coming round to your actual question. Is it at actually an expense? I would have thought this is a debt which you would seek to recover. In fact I would argue you had met the terms of the contract by paying who they asked you to pay but that's a legal question. It is, in my view, a recoverable item so it is not an expense, its a capital asset which you hope to monetise. If you need to write it off or cannot recover then it may be an expense. But does it relate wholly and exclusively to the business? If the intention is that it does then yes it will be an expense (or capital item if that is what was intended).

    Note that I think the second payment is clearly for the works so subject to the capital v revenue question in the first paragraph is clearly a business cost so potentially deductible. The issue is the first payment which did not go whether it was intended. It is the intention which is key.

    The taxman does not require you to spend money efficiently. He does not penalise you for bad decisions. What he does do is check that what you are doing was intended to be wholly and exclusively for business purposes!

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Hello. Thank you for very much for your full answer. Very useful, and nice to hear it from a a professional POV of how the tax man sees things.

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    Thanks again Stuart. Yes, prior to your message, I was scouring the pages of whats allowed and now allowed, on the HMRC website. As you might imagine, there are, I think, hundreds of pages, in accordance to anything and everything. However I didn't find anything directly related to my question.

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    '...but may not be able to, as the building company may look to liquidate the freehold of the house...'

    DO YOU MEAN SELL THE FREEHOLD REVERSION?  WHY WOULD THIS BE SO TERRIBLE THAT YOU HAVE TO PAY TWICE TO AVOID???  DONT MAKE SENSE.

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