Help Understanding Loss Brought Forward

eggman

We have a holiday chalet in Cornwall that we rent out but don't make a profit on mainly because we don't run it as a business and we re-mortgaged to buy it.

We've used an accountant to complete our SA for the last 3 years and each time there has been a mistake.This year we are completing them ourselves but have a question.

It looks like the income/expenses on the chalet on our previous returns have been split 80% to me and 20% to my Wife.

My Wife works part time and paid £65 tax in 2011-12. On the 2010-11 form our accountant put a loss of £435 which including a loss brought forward of £1282 means it showed a loss of £1717.

Does this loss mean anything because she won't be able to use that loss for a tax refund because she doesn't really pay tax? I'm also wondering if she needs to do a return at all and just put all the income-expenses as mine.

Many thanks in advance for your help.

nomunnofun

Quite concerned by this one. Are you showing this as property income or as furnished holiday lettings? The tax treatment, split of income and loss rules are entirely different for each.

If it has always been declared as income from property there would need to have been an election to split other than 50:50. If furnished holiday lettings, there are extremely strict rules regarding the ability to treat the income in this way, particularly in terms of the actual letting periods.

You need to establish these facts before submitting - not much time.

eggman

Thanks for the quick response.

It's been classed as a furnished holiday letting.

It was definitely split 80:20 for 2010-11 so I have done the same for 2011-12. My form is complete and ready for submitting based on this and it's the carried loss that was the stumbling block for my Wife's.

I presume I have no losses to bring forward from 2010-11 because I had a tax refund.

With my accountant I felt that I seemed to be doing all the work for the SA and it didn't seem value for money especially after mistakes were made.

nomunnofun

http://www.hmrc.gov.uk/helpsheets/hs253.pdf

You need to look at the above, particularly the qualifying conditions. This is quite a specialist area - are you sure that you are confident enough to do it yourself as your losses argument does not follow.

chrismac1

There have been several changes in FHL tax in the past few years. The main ones as they affect you:

1. Up to 5 April 11 it needed to be let for 70 days per tax year to qualify as FHL. Now it is 105.

2. Up until then FHL loosses could be set off against other income and result in a tax rebate if you'd paid tax on the other income. Now they go into an "FHL pot" to be offset against future losses from qualifying FHLs.

For this current return:

1. Was the property let for the 105 days? if yes, complete the FHL boxes. if no, complete the buy to let boxes.

2. The split should be 50-50 in each tax return unless there is a valid deed of variation in place saying otherwise. Let the accountant and his or her PI cover worry about earlier years if there is an HMRC challenge to the 80-20, you have fulfilled your responsibility as a taxpayer by sub-contracting this to the accountant.

3. Your wife needs to do a tax return as long as she has ownership of a property which is not her sole or main residence, unless she writes to HMRC telling them of her circumstances and they agree she does not need to do one. Suddenly there is some prospect of this for 2012-13 (if there was no tax due in earlier years) because the child benefit restriction is adding a massive burden to the UK self-assessment system and every request I've made in the past few months has been accepted, normally 70% or so are.

eggman

Thanks for the replies.

I suppose going it alone I was going to come stuck at some point but many thanks for your help.

Regarding the loss here is the detail from my Wife's 2010-11 form:

"Loss brought forward used against this years profit" £1282

"Adjusted loss for the year" £435

"Loss to carry forward to following year" £1717

For the 2011-12 return it asks "Loss brought forward against this years profit"

Am I right in thinking that because there isn't a profit I leave this blank or do I put £1717.

Finally,there is a loss this year of £416. It ask's total loss to carry forward. Am I right that the answer is £416?

I note there are some changes for 2012-2013 so that figure won't mean anything for next year but that's for another time.

nomunnofun

Loss brought forward and used against this years profit NIL

Loss carried forward £2133 - (416 + 1717)

I would be interested in how your return dealt with the loss last year though.

chrismac1

For me the key issue is on what basis you have split this 80-20. If your accountant got this wrong in the past, fine. That does not mean that if you carry on with the error you will be OK, this year's tax return is your responsibility.

http://www.hmrc.gov.uk/forms/form17.pdf

Have you submitted a form 17 to vary the beneficial interest to 80-20 from 50-50? If yes, submit the return as it is now. If no, re-work the shares at 50-50.

nomunnofun

Are you sure chrismac - this has been confirmed as furnished holiday lettings and profits can be split between the parties as they agree.

Where a spouse or civil partner carries on the activities of furnished holiday lettings together with others, the profits or losses should be split in the way that the parties agree.

Hence my first post - but happy to be corrected if wrong.

eggman

chrismac1 - Thanks for the link. I've taken a look and it states not to fill in for FHL?

nomunnofun -thanks for the help with the losses question.

chrismac1

Your initial post suggested that it had not qualified as an FHL. Across my client base I have roughly 20 FHLs. Every single one which rents out over 105 days is making a profit, excluding those with substantial repairs. As yours is not I had assumed you'd be completing the standard letting section and not the FHL one, sorry if this assumption is incorrect.