Rental income from family

JodieR

A client of mine bought a flat last year and rents it to her brother. The (interest only) mortgage is £450 a month but the brother only pays £300 per month, so she's always going to make a loss on this. She's not got any other properties.
I know that the loss will never be able to be set against any other income so she'll probably never get relief for it, but are there any other tax implications I should be making her aware of? I can't think of any reason why I'd not prepare property accounts in the same way as usual, but if anyone knows any different please let me know!
Thanks
Jodie

T.C.

I would suggest that basic records are kept because the property may be rented to someone different in the future and then the losses can be set off against future profits. Also I would double-check that the rent being received is definitely only £300 a month! Hope that helps.

JodieR

Thanks, I will keep records & include them on the tax return. She said that when they were looking at flats the brother said that he couldn't afford more than £300 rent a month, but she decided to buy something a bit bigger I guess as an investment (or maybe just because she's a nice person!). But yes, I'll do what I can to check that that's all she's getting.

Monsoon

Jodie I've just done rental income in ATT personal tax so it's pretty fresh in my mind, and I can't think of anything else. Like you say, can't offset loss against other income as it's non arms length and not market rate. Other than that, it's pretty normal I think.

PGM

Monsoon wrote: »

Jodie I've just done rental income in ATT personal tax so it's pretty fresh in my mind, and I can't think of anything else. Like you say, can't offset loss against other income as it's non arms length and not market rate. Other than that, it's pretty normal I think.

Agreed, its a loophole thats been closed up. Can only be carried forward and offset against other rental incomes.

deanshepherd

Rental losses cannot be set against other income regardless of whether it is an arms length transaction or not.

The restriction for lettings to connected persons is that losses can only be carried forward and set against future profits on property let to the same person.

Monsoon

deanshepherd wrote: »

Rental losses cannot be set against other income regardless of whether it is an arms length transaction or not.

The restriction for lettings to connected persons is that losses can only be carried forward and set against future profits on property let to the same person.

Thanks, that's what I meant (and knew Jodie knew!) but didn't clarify properly.

deanshepherd

I know you knew and that you knew Jodie knew, I knew Jodie knew too!

Nice blog by the way..