Self assessment tax query

We are due to take approx 5k in rent on tenancy signing on 4th April with the money going to OpenRent and passed to us within ten days as per their terms. As 4th April is in 2021-22 tax year but we won’t get the money from open rent until 2022-23 tax year, which years tax return do we put the 5k in?

If the answer to the above is that the 5k goes in 2022-23 tax year we have allowable expenses for tax year 2021-22 but no rental income. How do we offset these?

Good question. Looking at it from HMRC’s perspective, if you had to show your records 5 years down the line from now, it appears to me that the expenses and rental income occur in separate years. Not helpful. However, I would hope that if you could demonstrate to HMRC that you are paying the appropriate amount of tax on the net income with no double counting of allowances, they would be satisfied.

The answer is that it is taxable when the agent gets the money if you are using the cash basis (which is the default and I would recommend to keep it simple). See “Amounts Paid to Agents on Behalf of the Landlord” here… PIM1094 - Property Income Manual - HMRC internal manual - GOV.UK

You could use the accruals basis, but they you would have so allocate all income and expenses to the right periods (so, if 6 days rent fell into 2021-22, you would include only that, but you would also have to apportion costs such as insurance, agents fees etc).

If you made a loss in 2021-22, you would carry it forward anyway.

Just be careful with finance costs too - if you don’t use them all, they are carried forward separately to the property loss.

…is dangerous in tax terms - tax is not necessarily logical. Yes, it would be logical that the money would be taxable when you get it, but that is not the right answer!!

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Thanks Cath2. I know you are very on knowledgeable on accounting and tax matters. I consider myself enlightened.

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Thank you for your responses Nitesh and Cath

Cath can I pick your brains, I had 6 months rent in advance on 2 April, I assumed that I could use all this in this financial year but I think from the above thread it has to be 3 days in 21/22 and the rest carries forward to 22/23?
Also we have spent 7.5k on essential works which I think are all allowable do I lose these or can I put this down as a loss for this year and carry it forward. Thanks in anticipation.

Hi Beverley

If you are cash accounting (which is the default if you don’t tick the box otherwise) then all of the rent would be taxable when received.

You can choose to accruals account, in which case, you would include just the three 3 days. But you would also have to time apportion other costs such as insurance (if you pay a year up front) and keep track of the balances you see carrying guests yearb on year. If you’re doing it yourself, I’d keep it simple and stick with cash accounting.

So you would include all of the income and your £7,500 expenses in 2021-22 under cash accounting.

If you make a loss, you can carry it forward to next year.

The other question could be: were the costs capital (added to the cost for capital gains tax purposes) or revenue (deductible against income). HMRC could argue that they are capital if the work was essential and you could not have let is as it was, especially if you got the property cheaper as a result. However, if you could have let it, but chose to to the work, you should be ok - eg if the kitchen could have been used, but you chose to replace it to make it more attractive to tenants. Unless they were obviously capital (eg there was no kitchen), I’d probably claim them as revenue.

Brilliant you are amazing, thank you so much, I have a feeling you might hear from me again ! :wink: