Tax on timeshare rental

AlienInTown

A request from the timeshare company about UK digital regulatory reporting requirements alerted me about the possibility of tax liability for timeshare rental. 

Occasionally, when we can't use our timeshare, we put it up for rent. It seems that this income might need to be declared on my tax return.

Recently, when we had a taker for only part of our week, the surplus from the rental (rental minus commission, utility bill and VAT) was less than our management fee - so we made a net loss.

However, HMRC says:

'If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. You may be required to complete a tax return for other income.'

Note that HMRC says '*gross* property income'.

It doesn't seem right that I could be charged tax for simply mitigating a portion of our management fee when we couldn't use the accommodation ourselves.

Am I interpreting HMRC's position correctly? Can I not offset our management charges against the rental income?

Dazed_and_C0nfused

AlienInTown said:

A request from the timeshare company about UK digital regulatory reporting requirements alerted me about the possibility of tax liability for timeshare rental. 

Occasionally, when we can't use our timeshare, we put it up for rent. It seems that this income might need to be declared on my tax return.

Recently, when we had a taker for only part of our week, the surplus from the rental (rental minus commission, utility bill and VAT) was less than our management fee - so we made a net loss.

However, HMRC says:

'If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. You may be required to complete a tax return for other income.'

Note that HMRC says '*gross* property income'.

It doesn't seem right that I could be charged tax for simply mitigating a portion of our management fee when we couldn't use the accommodation ourselves.

Am I interpreting HMRC's position correctly? Can I not offset our management charges against the rental income?

Are you getting confused.

Leaving aside whether the "expenses" you have incurred are claimable or not why do you think would be charged tax if you (genuinely) made a net loss?

sheramber

Advising HMRC that  you had gross property income of over £1000 does not mean you are taxed on  the gross income. 

If your gross  income is over £1000  you need to advise HMRC but when you complete your return you can claim  tax relief for allowable expenses.

If that results in a loss then  there is no profit to tax. 

But you must  report your income and expenses claimed. 

silvercar

What portion of the management fee are you mitigating? Arguably it’s for the time it is available to let, rather than the actual portion of when it is let.

AlienInTown

silvercar said:

What portion of the management fee are you mitigating? Arguably it’s for the time it is available to let, rather than the actual portion of when it is let.

We'd asked for the whole week to be let but the company could only find somebody to rent part of the week

AlienInTown

Dazed_and_C0nfused said:

AlienInTown said:

A request from the timeshare company about UK digital regulatory reporting requirements alerted me about the possibility of tax liability for timeshare rental. 

Occasionally, when we can't use our timeshare, we put it up for rent. It seems that this income might need to be declared on my tax return.

Recently, when we had a taker for only part of our week, the surplus from the rental (rental minus commission, utility bill and VAT) was less than our management fee - so we made a net loss.

However, HMRC says:

'If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. You may be required to complete a tax return for other income.'

Note that HMRC says '*gross* property income'.

It doesn't seem right that I could be charged tax for simply mitigating a portion of our management fee when we couldn't use the accommodation ourselves.

Am I interpreting HMRC's position correctly? Can I not offset our management charges against the rental income?

Are you getting confused.

Leaving aside whether the "expenses" you have incurred are claimable or not why do you think would be charged tax if you (genuinely) made a net loss?

I'm grateful for your response. Because thus far my income comprised my salary (now my pension) and odd bits of interest, I have little exposure to things like allowable expenses.

So, my first question is whether I can set off the timeshare management as an expense against the rental income we received. 

The second question is what amount I'd have to pay tax on, using the following figures:

Management fee  £1025

Rental received    £1015

However, the rent charged is £1450; the company than subtracts utility charges, their commission and VAT on the commission.

So, by my reckoning I make a net 'loss' of £10 (1025 minus 1015).

I don't know what I should show as the gross income - the cash I receive or the amount the renter pays. In either case, since it exceeds £1000, I'd need to show it on my tax return. But what expenses can I write off against this?

And a last question. My spouse and I jointly own the timeshare. Should we halve the rental income? If so, neither of us would need to show it on the tax form, regardless of the figure we use (rental received or rental charged).

AlienInTown

sheramber said:

Advising HMRC that  you had gross property income of over £1000 does not mean you are taxed on  the gross income. 

If your gross  income is over £1000  you need to advise HMRC but when you complete your return you can claim  tax relief for allowable expenses.

If that results in a loss then  there is no profit to tax. 

But you must  report your income and expenses claimed. 

Thank you. Hitherto, my tax return has been very straightforward: salary or pension income, bits and bobs of interest. Rental income (albeit from timeshare) and claiming expenses is a new game!
If the management fee I pay for the timeshare can be set off against the occasional rental income then I'd be well under the £1000 threshold, assuming that the taxman only wants tax on net rental income exceeding £1000. Sure, I'd still need to declare any gross income exceeding £1000.
I've set out more detail in my response to Dazed_and_C0nfused

AlienInTown

[Deleted User] said:

The penalties that apply for not reporting offshore income are quite steep and HMRC can go back a long time. You might want to look at this too: [link]

Thanks for the warning. Luckily our timeshare is in the UK, avoiding at least some complications. No investments abroad. (Sorry I had to remove the link you'd provided - seems I'm too new and inexperienced to be allowed links in my posts.)

silvercar

If you jointly own the timeshare, you each report half the income.

Arguably you apportion the management fees according to the time it was available for rental as a percentage of the total time. So if you have the timeshare for a month and you occupy for 2 weeks and it’s available for rent for 2 weeks, then half the management fees can be an expense.

Bookworm105

AlienInTown said:

Dazed_and_C0nfused said:

AlienInTown said:

A request from the timeshare company about UK digital regulatory reporting requirements alerted me about the possibility of tax liability for timeshare rental. 

Occasionally, when we can't use our timeshare, we put it up for rent. It seems that this income might need to be declared on my tax return.

Recently, when we had a taker for only part of our week, the surplus from the rental (rental minus commission, utility bill and VAT) was less than our management fee - so we made a net loss.

However, HMRC says:

'If your annual gross property income is £1,000 or less, from one or more property businesses you will not have to tell HMRC or declare this income on a tax return. You may be required to complete a tax return for other income.'

Note that HMRC says '*gross* property income'.

It doesn't seem right that I could be charged tax for simply mitigating a portion of our management fee when we couldn't use the accommodation ourselves.

Am I interpreting HMRC's position correctly? Can I not offset our management charges against the rental income?

Are you getting confused.

Leaving aside whether the "expenses" you have incurred are claimable or not why do you think would be charged tax if you (genuinely) made a net loss?

I'm grateful for your response. Because thus far my income comprised my salary (now my pension) and odd bits of interest, I have little exposure to things like allowable expenses.

So, my first question is whether I can set off the timeshare management as an expense against the rental income we received. 

The second question is what amount I'd have to pay tax on, using the following figures:

Management fee  £1025

Rental received    £1015

However, the rent charged is £1450; the company than subtracts utility charges, their commission and VAT on the commission.

So, by my reckoning I make a net 'loss' of £10 (1025 minus 1015).

I don't know what I should show as the gross income - the cash I receive or the amount the renter pays. In either case, since it exceeds £1000, I'd need to show it on my tax return. But what expenses can I write off against this?

Lets start with the simple bit, you have received more than £1,000 in cash therefore without doubt you have exceeded the £1,000 threshold above which you are required to report to HMRC the fact that you are operating a rental business (as receipts above that is in excess of the allowance and so may result in a profit or loss that needs to be declared). 

however the rest of your figures are confusing:

who pays the 1450 "rent" and is that monthly, weekly or what?
- is that what the management company charges to you ?
- does the 1450 include 1025 management fee so the remaining 415 is the utility charges, their commission and VAT?

potentially your costs incurred during the letting period would be 1450 / number of days that covers x number of days that your customer rented it for.

if however the 1450 is what the customer pays to the management company and the management company (not the customer) then paid you the net amount of 1015, that means your costs for the rental period is the management fee on a time apportioned basis. The utilities, commission and Vat are ignored as the customer has paid them, in full, to the management company directly, so are not your costs during the rental period. 

Simply doing 1015 - 1025 looks very wrong as that implies the management fee tallies to the minute with the time period the customer rented it for ?

Alternatively you could just bite the bullet and simply declare gross income 1015 (tallies with money in your own bank) and subtract the 1,000 "no questions asked" Property Trading Allowance leaving you with £15 profit on which you would pay at least £1.40 of tax @ 20%, (or more if you are a higher rate taxpayer). If claiming the allowance you do not have to work out actual costs as your deduction, although obviously if you believe your actual costs are more than 1,000, then you will need to work them out and deduct that figure instead.

TheGreenFrog

AlienInTown said:

The second question is what amount I'd have to pay tax on, using the following figures:

Management fee  £1025

Rental received    £1015

However, the rent charged is £1450; the company than subtracts utility charges, their commission and VAT on the commission.

So, by my reckoning I make a net 'loss' of £10 (1025 minus 1015).

I don't know what I should show as the gross income - the cash I receive or the amount the renter pays. In either case, since it exceeds £1000, I'd need to show it on my tax return. But what expenses can I write off against this?

And a last question. My spouse and I jointly own the timeshare. Should we halve the rental income? If so, neither of us would need to show it on the tax form, regardless of the figure we use (rental received or rental charged).

Assuming that your timeshare gives you a one week slot and that the management fee you refer to is what you get charged annually (effectively for that one week slot) then:

- the gross rent appears to be £1,450.  You could double check that with the management company (in case, say, £25 of that is in fact a booking fee they "charge" to the taker of your week) - you may want to understand what they would report as rent received on your behalf in case in future years it does exceed £1,000 each
- as the timeshare is "owned" jointly then the gross rent is less than £1,000 each
- you could in theory put in a claim for the loss to be carried forward to future years (assuming your management fee and the difference between 1,450 and 1,015 fully deductible, which they  may well be).  Does not seem worth it though
- if you are on Self Assessment check whether you need to fill in the property income form, even though you will be within the property income allowance which will in effect mean you don't need to detail your expenses (I don't know the answer, but I receive £50 a year in ground rent and the software I use to do my return makes me declare that!).