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I own several farms in Wales which Have been in the Family

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I own several farms in Wales which Have been in the Family for over 150 years and are managed for us by an Estate Management Firm. Twice a year I get sent a statement of Accounts that give the rent from the farms for the half year plus any extra income such as Power company Wayleaves etc. from the amount is subtracted costs such as Insurance, and repairs to buildings and Management commission. A 'cash in hand' amount is retained by the Estate to cover any urgent/unforeseen maintenance repairs so this is not included in the amount of income actually received. This retained amount can vary and currently stands at around £9,500 but has in the past been no more than £3000. Over the years doing my Self assessment I have been using the property section and have been declaring the full rental minus payments and commission as income. This can far exceed what I actually receive,all because this 'retained balance' so I can fall into a higher tax bracket.
In the past whilst I was working it was not much of a problem, but now as I am retired with only a pension and this farm income I could now be paying more tax that is required. I was wondering if there is any to use all or some or this 'retained balance amount' to lessen the total Farm Income and so satisfy the HMRC .Example -
Farm rents for year - £24,500.00
Repairs per year - £1000.00
Commission - £2500.00
Insurance - £3500.00
Total Farm income - £18,500.00
Total paid via cheque £10,500.00
Amount retained for emergencies is therefore £8,000.00
This is counted as 'Balance B/F' on the next statement
Unfortunately because I have been using the full Farm rents minus expenses as property income for so long, the could start to ask questions if I start entering the amount actually received on my Tax assessment, which would be far lower than the amounts on previous assessments.
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Customer: replied 6 months ago.
Many thanks. I await your response.

Hi, Sam here , one of the UK tax Experts here on Just Answer, thank you for your question and I shall reply shortly

Hi

Thanks for your patience

I am afraid you cannot deduct this retained amount as it still forms part of the income/rents collected for the year - all I can propose is that you ask for the estate management firm to hold a smaller retainer.

But this also happens in normal residential let situations where a managing agent retains an amount for any maintenance/repairs - but it still arises as part of the rents you are due and that have been collected, its just distributed elsewhere - but still is an amount that has to be considered within your (the landlords) income position

So the way you have been declaring this has been correct and must continue this way. Even if this still pushes just into the 40% tax bracket so your only solution is to come to some better agreement with the management company

Let me know if I can assist further

Thanks

Sam

Customer: replied 6 months ago.
Thanks for your answer, I thought that this would be the case. The amount retained has increased over the years mainly due to the increase in maintenance costs and the age/condition of the farm buildings, some on which are now over 150 years old. The only way I see to reduce the amount of Taxable income is to put in more maintenance/Improvements so increasing Estate expenses which can then be deducted from the rental income. I do not think that the holding of a smaller retainer would make much difference as this would not reduce the rent income.
I will try to speak with with one of the senior partners on the Estate Management Firm to see if he has any ideas.

Hi

It seems an excessive amount for them to retain - considering the rents collected ! But yes if this retained amount was to be spent on maintaining/repairing then this would reflect through the next 6 months r following years accounts at which point you could claim this as a general repair to reduce the gross rent position

No the holding of a small retainer would not reduce the rental position but then you have a a bigger income position to cover the tax due on -

If you remin higher rate - you could consider taking some of the net rental income to put into a personal pension plan - but this would be dependent on your age and how much you pension pot sits at (as this the would attract a further 20% tax relief through your self assessment -as 20% at source and 20% to counteract the higher rate tax position

But as everyone else you are getting £11850 tax free and then paying 20% tax on an amount up to the next £34500 so you still end up with 80% of the rents in your pocket!!

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 14503
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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