Tax on farm cottages rent

[buttercup]

Hi there - accountant has farm accounts for the year, rather shocked to find that the rent from farm cottages can not be off set against the rest of the farm. Thus meaning that we have to pay tax. does any know what the threshold is, and what ways around there are (other than them paying us cash, which @ 900/month is a quite a lot of cash).

 

[Goweresque]

What do you mean 'offset against the rest of the farm'? Is the farm loss making?
£900/month is just under £11k, you have an income tax allowance of £12.5k per person anyway, so if the farm is making losses then the cottage rent would be covered by just one person's allowance.

 

[Still Farming]

Hi there - accountant has farm accounts for the year, rather shocked to find that the rent from farm cottages can not be off set against the rest of the farm. Thus meaning that we have to pay tax. does any know what the threshold is, and what ways around there are (other than them paying us cash, which @ 900/month is a quite a lot of cash).

Should be separate accounts.

 

[Lincsman]

Mine just adds to the total business, like another load of wheat.

 

[Pan mixer]

Rents are classified as unearned income I believe and so can't be integrated with the earned income (or earned loss) from the rest of the farm

 

[steveR]

Mine just adds to the total business, like another load of wheat.

Same here.

Repair and Maintenance the same.

 

[buttercup]

Pan mixer that what the accountant says

 

[Pauly]

Mine just adds to the total business, like another load of wheat.

likewise and any costs also. don't know if rules are different for sole trader or ltd co

 

[Lincsman]

likewise and any costs also. don't know if rules are different for sole trader or ltd co

You have to watch the VAT reclaim on costs.. its a limited amount.

 

[Lincsman]

Rents are classified as unearned income I believe and so can't be integrated with the earned income (or earned loss) from the rest of the farm

Only from the point that it incurs no NI iirc

 

[Princess Pooper]

Mine just adds to the total business, like another load of wheat.

They might be on the face of the accounts but it will be accounted for separately in the tax computation / tax returns and you would be none the wiser. If it's not then your accountant is breaking the law.

Rental Income is Sch A and farming is Sch D. https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income.

If the cottage are furnished holiday lets then it's different again. https://www.gov.uk/government/publi...lpsheet/hs253-furnished-holiday-lettings-2018

 

[B R C]

It’s not going to be much tax is it? Just pay it. I just don’t understand people who run their business in such a way just to avoid tax at any cost

 

[Goweresque]

An interesting thread of debate on the subject here (though it does descend into a discussion about Shakespeare and Led Zeppelin ):

Offsetting Trade Losses with Rental Profit

Hi All I have been advised that i can offset a £5,000 loss made in normal soletrader trade with £25,000 profit made from rental profits for properties

www.accountingweb.co.uk

It seems that you can offset trading losses against other general income, but only if your trading income is not calculated on a cash basis. So the question to ask your accountant is whether your trading accounts are being drawn up under the cash basis or the accruals basis, and if the former why haven't they advised you as to the tax advantage of doing it the other way?

The relevant law is the 2007 Income Tax Act Section 64, and the HMRC Business Income Manual #85015:

BIM85015 - Trade losses - types of relief: relief against general income - HMRC internal manual - GOV.UK

www.gov.uk

 

[Bongodog]

If you aren't earning enough from the farm to use your personal tax allowance its time to get out of farming.
If you are the tax rules for rental property are of no consequence

 

[Lincsman]

They might be on the face of the accounts but it will be accounted for separately in the tax computation / tax returns and you would be none the wiser. If it's not then your accountant is breaking the law.

Rental Income is Sch A and farming is Sch D. https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income.

If the cottage are furnished holiday lets then it's different again. https://www.gov.uk/government/publi...lpsheet/hs253-furnished-holiday-lettings-2018

Its separated to remove the NI liability and allocate only allowable expenses, but the bottom line is its added to your tax bill at whatever rate you have reached.

 

[MCook]

As @Princess Pooper detailed, whilst the trade and rental income will appear together in the accounts, they are treated separately in the tax computations. If the trade made a loss and the rental a profit, the trade loss cannot be offset against rental profits due to HMRC considering income from property as an investment, rather than a trade.

As others have mentioned, unless you have significant property income, your personal allowance should cover at least the majority of any profit. If you are incorporated, which I suspect is unlikely with the property, then it would be liable to Corporation Tax.

 

[Still Farming]

Does your Wife run Cottages or long term let's?
No VAT if she running as her business.

 

[farmerm]

Should be separate accounts.

A little IHT planning might indicate otherwise......

 

[Still Farming]

A little IHT planning might indicate otherwise......

BPR or APR similar so far?

 

[buttercup]

No "farm partnership" run the cottages.