Are transport costs and miscellaneous expenses tax deductible?

[Luternau]

In fact the 75% restriction on mortgage interest is a subsidy by landlords to other taxpayers as they are paying tax on non-existent "profits" that they have never earned.

Very well said. Has anyone challenged this restriction? It is so unfair that many owners of RIP are paying tax on a net loss. It defies logic that one is taxed on a loss. Am I right in saying it would not apply to commercial property held in the same way as RIP (not by a company) or to companies who's sole or main trading activity is renting residential propery and pay corporation tax on operating profit only? If so, why penalise one segment of the rental/letting market?

My theory on this was that it was brought in flush all the retained losses out so that it could be reinstated at 100% and most people would have no losses carried forward anymore. It's been very effective!

 

[Joe_90]

Am I right in saying it would not apply to commercial property held in the same way as BTL properties or to companies who's sole or main trading activity is renting residential propery?

You are correct the restriction does not apply to commercial property Buy To Lets. You need to get it clear in your head - renting residential property is not a trading activity.

The restriction applies to interest paid on mortgages used to acquire, refurbish residential property whether by an individual or company.

 

[Mrs Vimes]

Would renting commercial property be considered a trading activity? I wouldn't have thought so.

 

[Luternau]

You are correct the restriction does not apply to commercial property Buy To Lets. You need to get it clear in your head - renting residential property is not a trading activity.

The restriction applies to interest paid on mortgages used to acquire, refurbish residential property whether by an individual or company.

Thats a fair point, but how can the type of property change how the income it generated is viewed?

The differentiation here is flawed-renting property whether residential or commercial is or is not a trading activity. It can't be both-surely?

 

[Joe_90]

Rent from any kind of property is rental income.

 

[murphaph]

You are correct the restriction does not apply to commercial property Buy To Lets. You need to get it clear in your head - renting residential property is not a trading activity.

But renting out commercial property is? Or have I taken you up wrong?

 

[Luternau]

Rent from any kind of property is rental income.

My question was about the activity. How can the same activity have two different determinations for tax purposes?

Apologies for going slightly off topic-but the activity seems to be the key determinating factor for what expenses can be claimed and by whom.

 

[Bronte]

My theory on this was that it was brought in flush all the retained losses out so that it could be reinstated at 100% and most people would have no losses carried forward anymore. It's been very effective!

That's an interesting theory. My own is that the government brought it in as landlords were seen as an easy touch, everybody hates us, and we're all loaded with property. A couple of years ago I thought they were going to reduce the 75% down, but they decided against that as they now know how many landlords are in such serious trouble. Particularly those that bought at the top, on 100%+ mortgages, interest only.

And I see once again the government cannot resist interfering in the market with their no CGT for 2014 extension. But one would need a very good yield to get into the market now, even with the CGT exemption.

 

[Setanta12]

This is an utter distortion of the situation. Tax deductions for overheads are not subsidies, they are merely deductions against taxable rental income. It is just as easy to argue that, as landlords have to pay tax on their rental income, residential properties are less affordable to them than to owner-occupiers. Whether there is any point in arguing either case is another matter entirely.

In fact the 75% restriction on mortgage interest is a subsidy by landlords to other taxpayers as they are paying tax on non-existent "profits" that they have never earned.

Let me restate my point differently; there is a distortion of markets where potential owner-occupiers must compete with potential investors when the tax-reliefs available to both differ.