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Chapter PIM1075

Document Cited authorities 2 Cited in Related
Vincent
Published date10 April 2016
Record NumberPIM1075
CourtHM Revenue & Customs
Overview

Flat management companies should calculate their profits in accordance with GAAP, subject to any adjustments required or authorised by legislation. This means that any rents or other income received from tenants are generally taxable as property income. This will not be the case if the amounts received are capital (PIM2040) or for certain receipts which fall within Section 42 of the Landlord and Tenant Act 1987.

Section 42 of the Landlord and Tenant Act 1987

Under Section 42 of the Landlord and Tenant Act 1987 contributions to certain variable service charge funds and to sinking funds in respect of a resident property should be paid into a trust fund.

For the purpose of LTA87 service charges include:

  • any amount payable by a tenant as part of or in addition to rent which is payable, directly or indirectly, for services, repairs, maintenance or insurance or the landlord’s costs of management and,
  • the whole or part of which varies or may vary according to the relevant costs.

The service charge funds should be set at a level which leaves a “no surplus-no deficit” situation at the end of the year, though in practise there may be a small reserve remaining. For example, if part of a tenants rent is allocated to repairs this would be classed as a service charge if the amount is variable but simply part of the rent payable if it is a fixed amount.

Sinking funds involve the long term setting aside of funds for major...

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