Taxable compensation awarded to LL by deposit schemes

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  • jpkeates
    It's income and taxable.

    Then you can't offset the cost of the carpets.

    The second part of that doesn't affect the first - you may not have actually bought any carpet, any carpet you did buy is not allowable.
    And you pay tax on all of the income.

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  • Webbo1
    Interesting, earlier this year I received deposit compensation for a wrecked carpet in one of my unfurnished properties, I didn't declare this as income on the basis I can't offset the cost of the replacement carpet against tax anymore.

    Was this incorrect then??

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  • jjlandlord
    It is all taxable income, though the money you receive for damage can in general be compensated by the expense of fixing it.

    Rent received through the deposit is also obviously income:

    If you use the accrual basis you already accounted for it, so the money you receive from the deposit is only offsetting your debtors account. Though, as jpkeates mentioned, you might already have written it off (which is poor accounting but a way to avoid paying tax on income that hasn't been paid), in which case you account for it again when you receive it from the deposit.

    If you use the cash basis then you account for it when you receive it from the deposit.

    The only difference you could end up with is therefore the tax year the rent is accounted for.

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  • duckpond
    jpKeates---Many Thanks

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  • jpkeates
    It depends on a number of things.

    Compensation for the reduction in the value of the property is effectively income; repair costs are usually allowable.
    Replacement furnishings (including carpets and curtains) are tricky if renting non-furnished.
    If you're renting furnished, using the 10% allowance and the compensation is for furniture, it's income.

    Rental income "replacement" depends on how you do your tax return.
    If you do your return on the cash basis, it's income.
    If you do your return on the normal basis it will depend on how you treated the bad debt being compensated.

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  • theartfullodger
    Yes probably, I suspect...

    It ain't "compo" but either for unpaid rent or damages...

    If unpaid rent then landlord is only getting the INCOME (the clue is in the tax name - "Income Tax"..) he was expecting.... No better or worse off if he had the rent paid in the normal way, to be declared in the normal way. I've a feeling HMRC expect "rent" to be reported as "rent due" anyway, if not paid then "bad debts" under "other" in expenses make an appearance...

    If damages (say broken table..) LL gets % of new cost (after "fair wear 'n tear").. of, say, £250. Assume furnished so can't claim for new table against tax.. I'd say they LL should be taxed.. but I'm not sure..

    Is there a reason (eg you have such a situation..) for asking or are you merely doing research as a student, desperate to learn, trying to understand the business?? When you asked HMRC what did they tell you??


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  • Taxable compensation awarded to LL by deposit schemes

    I can guess the answer, but is compensation that is awarded to LL's by the various deposit schemes taxable as income?

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