Is compensation received from tenant taxable?

SissyB123

Can anyone help with a question about what constitutes taxable income from a property.

If a landlord gets to keep a tenant's deposit because of damage caused to the property is that classed as income from the property? ie is it taxable in the hands of the landlord?

Also if the cost of the damage exceeds the amount of the deposit and the tenant pays additional compensation to the landlord is that taxable?

Finally what if the letting agent pays compensation to the landlord for damage caused by tenants? Would that be taxable?

Thanks in advance for any advice.

00ec25

yes to all questions

in just the same way that if you choose to spend said compensation on carrying out repair work, then the costs of the work are eligible against your profit. You can't have it both ways!

Gas_Powered_Toothbrush

HMRC guidance here

You may want to pay particular attention to:

ICTA88/S24 (6) (b) and ITTOIA05/S266 (2) provide that ‘rents’ includes payments by the tenant for work to maintain or repair leased premises which the lease does not require the tenant to carry out.

Where a tenant is required to make such contribution, therefore, the amounts received by the landlord are taxable in full. The cost of repairs is allowable in full.

SissyB123

Thanks both of you for your responses.

However, how does it work when say the tenant destroys or steals things which were not replaced (as the property was sold shortly afterwards and it would simply have had to go into storage). Can I still claim the value of the stolen/destroyed items as repairs/renewals? The losses run into several thousand pounds.

agrinnall

Why wouldn't you claim on your insurance for loss/damage valued at several thousand pounds?

anselld

SissyB123 wrote: »

Thanks both of you for your responses.

However, how does it work when say the tenant destroys or steals things which were not replaced (as the property was sold shortly afterwards and it would simply have had to go into storage). Can I still claim the value of the stolen/destroyed items as repairs/renewals? The losses run into several thousand pounds.

I believe the answer will be the same.
If it is furnishings, etc then you have been receiving 10% W&T allowance against tax which already covers replacement costs. Any other repairs would be tax deductible. The fact that you choose not to replace or repair is fine but it gives you additional profit which is taxable.

00ec25

SissyB123 wrote: »

Thanks both of you for your responses.

However, how does it work when say the tenant destroys or steals things which were not replaced (as the property was sold shortly afterwards and it would simply have had to go into storage). Can I still claim the value of the stolen/destroyed items as repairs/renewals? The losses run into several thousand pounds.

without getting into very exceptional issues any costs you claim against your taxable income must be real and actual which is a fancy way of saying no you cannot claim the costs of items you did not replace or costs of repairs you did not do as you have not spent any money - claiming such fictional costs would be tax fraud ! Think about it for a second, this is a very basic concept and the fact you ask such a question is worrying in terms of how well you understand what you are doing

how you accounted for the original purchase cost against your tax at that time of purchase is where you were given tax relief against the cost of the items you now no longer possess. The fact they were subsequently stolen, destroyed, damaged or simply wore out does not allow you to claim a second time for the cost of the original item. Either you opted for the 10 W&T allowance or you opted fort eh replacement costs method. You cannot chop and change methods each year

compensation you received for the item's non availability is extra income - simples....
It is good that you recognise it is compensation as many LL struggle with that idea (as do tenants who demand evidence that the item has been repaired when presented with the deposit deduction claim!)