Tax from donations

jon_bulk

I am starting a new business, it will be a guest house. Most of the money collected for opening the B&B is from a donation. Now the question, Do I have to pay tax from all donations? Do I have to count donations as my income?

I'm self-employed and 100% of the money will be spent on buying a house and modernizing it. that is about 200,000 pounds. If I buy a house, can I count it as an expense and get a tax refund?

Regards
John

00ec25

please explain what you mean by "donation"
from whom? family?
do you have written evidence to support the fact it is a one way transaction with no possibility at all that the "donor" will get their money back, with or without interest added to it?

no you cannot expense the purchase of a property against income tax

depending on its condition and the nature of the work you do, all, some, or none of those costs may be claimed as repairs expenditure against your rental profits

You say you are self employed so you must already be familiar with the trading rules?
Is the property also your main residence? If yes you may need to gen up on the rent a room allowance and when it cannot be claimed for separate dwellings

is the property in fact a furnished holiday let? If so there are very specific rules over it.

the cost will eventually form part of your capital gains tax calculation when you sell the property

jon_bulk

Thanks for the answer 00ec25! I am new in business, about 2 months as a self-employed (carpenter) so the field of B & B is quite new to me.

donations are made by my family and my friends, together about 50 people who invested in a guest house. Everyone has written evidence to support business. The house will get a total renovation so it is not ready to be let for clients. I will not live in a guest house, it will be used only for business purposes.

I talked to some people and they have divided opinions as to whether I have to pay tax from these 200000pounds. Some say that as a self-employed person, I must count as income and pay 20% and after tax on 40%. Others say that I have to pay 20% of the donation if it is not intended for charity.

Of course, we would like to arrange everything Legally. I can pay tax or VAT but I would like to know how much tax I will pay.

pramsay13

Invested or donated?

jon_bulk

It is donated

Dazed_and_confused

Yet your earlier post said

together about 50 people who invested in a guest house.

You are talking about a lot of money here and professional advice would seem a sensible option given the potential complexities involved in the type of set up you have described, in more than one way, so far.

jon_bulk

Yes, I have a meeting with my account tomorrow but I wanted to ask others for opinions because maybe they already found themselves in such a situation and could advise something.

00ec25

jon_bulk wrote: »

Yes, I have a meeting with my account tomorrow but I wanted to ask others for opinions because maybe they already found themselves in such a situation and could advise something.

you have already listened far too hard to people whose "opinions" are garbage and have simply confused you

a donation is money given to you by someone else in exchange for NOTHING. There is no tax because it is a one way gift.

BUT from the mixed up comments you have made in posts #3 & #5 that is almost certainly not what you mean

the people who have "given" you money presumably expect to get it back?

in such case it is not a "donation" - there are 2 possibilities:
a) it is a Loan - There is no tax on you receiving a loan, but you most certainly do need to record what you owe to whom, and what terms apply to its repayment - with or without interest. If you have to pay interest that will be a cost chargeable against your profits.

b) it is an investment - There is no tax on you receiving such money, but the person giving you the money expects to receive a return - either as a share of the money from when you sell the property, and/or as an annual(?) payment from you to them representing "interest" or a "share" of your profits. (They pay tax on any profit you pay to them).

You are so mixed up at the moment you must see your accountant and get your facts straight before your "friends" lead you further astray.

jon_bulk

My family and friends do not want the money back. In return, there is free accommodation for them (of course occasionally).

d63

jon_bulk wrote: »

My family and friends do not want the money back. In return, there is free accommodation for them (of course occasionally).

but if in return for their money (/donation/investment) they are getting (occasionally) "free" accommodation, are they (friends/family) in effect buying into a time-share (holiday?) room-letting scheme?

it all seems very odd to be sure!

Pennywise

jon_bulk wrote: »

My family and friends do not want the money back. In return, there is free accommodation for them (of course occasionally).

So it's not a "donation". They're going to get something back for their money, so it's normal trading income, liable to income tax, NIC and VAT probably too.

A tax-free donation is where the donor gives something, say to a charity, and gets NOTHING back in return.