Bills But No Rent
The recession is hitting all sectors of the economy and the property rental sector is no exception. Although the difficulty in obtaining mortgage finance may force people into the rental sector who might otherwise buy, tenants may hit financial difficulties, as a result of job losses or otherwise, and consequently default on their rent.
Landlords may also experience empty periods when they are unable to let their properties.
Despite the lack of income, the landlord will incur expenses on the properties. A mortgage may need to be paid and expenses may be incurred on maintaining the property. What relief is available?
For tax purposes, all sources of income from land and property in the UK are generally regarded as deriving from the same single property rental business. This offers a number of advantages. One of these is in relation to expenses as the rules effectively allow expenses incurred in relation to one property to be offset against income from another.
Consider the situation of a landlord who lets 3 properties, each of which he purchased with a buy-to-to-let mortgage.
This global approach also means that if one property in the portfolio makes a loss, that loss is automatically relieved against any profits made by other properties in the portfolio.
It is important to note that the losses can only be set against future profits of the same rental business. Thus if one business ceases and a new one is started, relief for the losses may be lost. Losses will also remain unrelieved if the landlord is forced to sell the properties. There is no terminal loss relief under the property income rules.
One the plus side, the single rental business automatically offsets losses from one property in the portfolio against profits from another property; however, if the business as a whole makes a loss, relief is deferred until it is once again in profit.