USC due on rental profits???

R

RPC757

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Hi,

Just wondering if anyone has come across situation where a liability occurs on rental profits. Have just completed my 2011 tax return with my accountant and although I am carrying substantial rental losses forward from 2008-2010 he has informed me I am liable for USC on the small profit I made in 2011 from my rents.

My understanding was these profits could be fully set against losses brought forward. Thanks in advance for any clarification.
 
+1

That's the whole point of the USC, and the reason why they didn't just increase the tax rates, in order to capture income that otherwise wouldn't be taxed/charged...
 
If it is logical for USC to be charged on income that ignores a previous loss why then is it not logical to charge USC on the whole gross rental income, i.e. income before any costs ?
Surely, a previous year's loss is treated in the same way as a cost in any annual accounting procedure ?

If Revenue don't accept the C/F loss argument then , from now on , anyone making a loss in 2012 should try,instead, to break-even and push forward the loss to 2013 -e.g. postpone the repairs, painting, purchases till January. From the normal tax point of view it makes no difference when the cost was incurred if it can be B/F , but from this USC thing it will surely help -as would a bit of clever accounting.

Does my waffle make any sense ?
 
oldnick said:
If it is logical for USC to be charged on income that ignores a previous loss why then is it not logical to charge USC on the whole gross rental income, i.e. income before any costs ?
Surely, a previous year's loss is treated in the same way as a cost in any annual accounting procedure ?

If Revenue don't accept the C/F loss argument then , from now on , anyone making a loss in 2012 should try,instead, to break-even and push forward the loss to 2013 -e.g. postpone the repairs, painting, purchases till January. From the normal tax point of view it makes no difference when the cost was incurred if it can be B/F , but from this USC thing it will surely help -as would a bit of clever accounting.

Does my waffle make any sense ?
Click to expand...

In a word Nick, NO!

You don't get to choose what period to record expenses, it's part of the basic matching and accruals principles of accounting. There's a name for what you're talking about, which is income smoothing - there are ways and means in large companies to indulge in a bit of it legitimately, around provisions and things. But for a Joe Soap with a rental property, the expenditure can clearly be matched with the appropriate period.

For accounting purposes, each year is a standalone, the current year's profit/loss affects the balance sheet total, which incorporates all prior years' profits/losses. It is only for tax purposes that you carry forward a loss and use it to decrease a following year's income.

It's got nothing to do with a "carried forward loss" argument Nick - the legislation is very clear. In calculating income tax, allowance can be made for an unrelieved loss carrying forward. In calculating USC no allowance is made for a loss incurred in a previous year. It's a tax/levy/charge on current year income. It captures, quite deliberately, people like investors with substantial Section 23 relief, or Industrial Buildings allowance - they may have a substantial real income, and cash flow from a rental portfolio, which is being sheltered by what are in effect artificial losses.

I don't think too many people would be delighted to here that what is probably a wealthy class of taxpayers, should be able to escape USC as well as tax on what is a very real income.
 
Surely all Oldnick was suggesting is to wait till January to do the painting rather than incur the expense in November? Nothing to do with legislation.
 
Exactly Gervan.
If this year I were to make a loss of 5.000 euros because my expences were greater than my income then normally I would not care about declaring a profit of 5.000 euros next year because the loss of this year would be carried forward and there'd be no tax.
But with USC I would pay 7% of next year's income.

So, obviously I would ensure that expenditure would be such that there'd be zero profit each year, thus saving a few hundred euros on USC. It's not that hard and I wonder if landlords realise how they can save money this way.

(I fully understand its a means of catching section 23-type investors , though it would seem to dishonour the whole basis of section23 legislation. But why penalise landlords who have genuinely lost money in previous years -like OP, when ,finally, they make some profit ?)
 
oldnick said:
Exactly Gervan.
If this year I were to make a loss of 5.000 euros because my expences were greater than my income then normally I would not care about declaring a profit of 5.000 euros next year because the loss of this year would be carried forward and there'd be no tax.
But with USC I would pay 7% of next year's income.

So, obviously I would ensure that expenditure would be such that there'd be zero profit each year, thus saving a few hundred euros on USC. It's not that hard and I wonder if landlords realise how they can save money this way.

(I fully understand its a means of catching section 23-type investors , though it would seem to dishonour the whole basis of section23 legislation. But why penalise landlords who have genuinely lost money in previous years -like OP, when ,finally, they make some profit ?)
Click to expand...

Sorry nick I missed your original point slightly, it's about being careful about what you're spending and when.

Extending the logic of your last post though, people who've been unemployed, or not used all their tax credits/rate band/ USC band should be allowed to carry them forward to a year when they can use them.

The USC is a very singleminded tool, to increase the amount collected, and broaden the tax base bringing more income within a charge to tax.
 
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