Taxation of 7 months rent in advance?
I have a problem – it sounds like a nice problem. My agent has got me a short term let for 7 months and the tenant wants to pay 7 months rent in advance. The problem is that this tax year I am a 40% taxpayer, but next tax year definitely only a 20% taxpayer.
As I do my accounts on a cash basis I will end up paying 40% tax on all this income in spite of only 2 months of it belonging to this tax year.
My agent suggests just paying me two months rent to start, hanging on to the money, and then paying me each month during the next tax year. (Agent is big national agent who I trust).
However, I feel sure I have read on HMRC website somewhere that if you use an agent to collect your rent then you are deemed to have received the money on the same day that the agent receives the rent from the tenant.
I have searched without success for over an hour on the internet for this topic on the HMRC website which spells this out very clearly. Can anyone advise me on this topic please and/or give a link to HMRC web page?
Many thanks
David
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Handling good tenants in a falling market?
Member Since April 2014 - Comments: 136
12:13 PM, 30th January 2021, About 5 years ago
Reply to the comment left by Graham Bowcock at 30/01/2021 – 12:07
and my other comment. If the agent did this without my knowledge?
Member Since January 2020 - Comments: 559
12:33 PM, 30th January 2021, About 5 years ago
Reply to the comment left by Bill at 30/01/2021 – 10:40
Bill
I would be very wary of an agent who collected money without telling me. They should know the rules about acting as agent; it’s the landlord’s money. The payment of rent should be proeprly covered by the tenancy agreement, that both landlord and tenant receive.
Member Since April 2014 - Comments: 136
12:38 PM, 30th January 2021, About 5 years ago
Reply to the comment left by Graham Bowcock at 30/01/2021 – 12:33
I said what if? A rhetorical question that raises other issues if you never even knew.
Member Since January 2020 - Comments: 1103 - Articles: 1
12:40 PM, 30th January 2021, About 5 years ago
Reply to the comment left by Bill at 30/01/2021 – 12:38It might get quite complicated legally, but you are potentially responsible for whatever an agent (including an accountant) does on your behalf.
Member Since October 2016 - Comments: 55
4:32 PM, 31st January 2021, About 5 years ago
Setup a Ltd Co for £20. Rental agreement in Ltd Co name.
Receive rent to free business account and pay yourself after April 5th (or portion prior and after). You’re only taxed personally when you pay yourself from this separate legal entity.
Ideally you should sit behind a co. anyway for privacy reasons, requiring more digging by a more determined tenant or other party for your data.
Furthermore there are tax advantages to using a ltd co. with some allowed expenses.