OFFICIAL RECEIVER AS TRUSTEE
The official receiver will not become landlord of a jointly owned property upon his/her becoming the trustee of the bankrupt’s estate. The legal title to jointly owned property remains vested in the joint owners as it is not severable (see paragraph 31.12.70 for further details). What vests in the trustee is the bankrupt’s beneficial interest in the reversion of the property and the bankrupt’s beneficial interest in any AST agreement (see paragraphs 31.12.71 and 31.12.72)
Following the initial enquiries into the tenanted property (see Part 1), the official receiver should have sufficient information to decide on how to proceed with the tenanted property. If an insolvency practitioner is to be appointed as the trustee, or the bankrupt’s beneficial interest is to be sold, or the tenancy agreement is brought to an end in some other way, see Part 4.
To assist in locating information in Part 2 a break down of the part is provided as follows:
Where property is owned by the bankrupt jointly with another, the legal title to the property vests in both those parties as joint trustees and is not severable (see paragraph 31.12.6). The legal title does not form part of the bankrupt’s estate and so does not vest in the official receiver as trustee [Note 1]. Even if all the joint owners are bankrupt, it will only be their beneficial interests and not the legal title which will vest in their trustee(s).
The bankrupt’s beneficial interest in the proceeds of sale of the property, and rent and profits of the property pending sale are severable and do however vest in the trustee [Note 2]. The interests of the parties are normally declared in the conveyance or in a trust deed executed at the time of the conveyance. Such declarations are conclusive of the interests of the parties unless there has been a mistake or fraud.
If the bankrupt is a joint owner of a tenanted property, and the tenancy agreement is in the names of both joint owners, then the legal ownership of the property and the tenancy agreement remain vested in the joint owners and the responsibilities of the landlord remains with them. This is because a joint legal estate cannot be severed and property held on trust by a bankrupt does not vest as part of a bankruptcy estate.
The official receiver’s interest, as trustee of the bankrupt’s estate, is limited only to the bankrupt’s share of the profits from the AST agreement and the bankrupt’s share of the reversion of the freehold/leasehold interest at the end of the tenancy (being the bankrupt’s beneficial interest). It is this beneficial interest that vests in the official receiver as trustee (see paragraph 31.12.6).
Where both joint owners of the tenanted property are bankrupt, the official receiver, as trustee, will hold 100% of the beneficial interest in the property. The legal title to the property will remain with the bankrupts as it cannot be severed. It is not the case that two halves make a whole and that the official receiver, on holding 100% of the beneficial interest, will become the legal owner of the property.
As it is only the beneficial interest in an AST that vests in the official receiver as trustee, the joint owners retain the right to collect the rent from the tenant (see paragraph 31.12.9 for more details). The official receiver, as trustee, is only entitled to the bankrupt’s share of the profits from the rental income, that is the bankrupt’s share of the rent after deduction of all direct costs and expenses of renting the property under the terms of the AST agreement (see Part 3). This situation applies even where both the joint owners are bankrupt.
Certain types of tenancy agreements are excluded from the bankrupt’s estate by legislation [note 3]. These exemptions include the majority of tenancies that the official receiver is likely to encounter such as assured tenancies and secure tenancies (as used by local councils and housing associations), and AST’s (as used by most private landlords), see Chapter 30, paragraph 30.70 for a full list.
The Insolvency Service has received advice that these landlord tenancy agreements are capable of vesting in a trustee of a bankruptcy estate and being dealt with as assets. Chapter 30, Part 4 provides guidance on dealing with tenancies where the bankrupt is the tenant.
As the renting out of property by a bankrupt is not classed as a trade, sanction to continue trading is not required from the Secretary of State [note 4].
When both joint owners are bankrupt and the official receiver is trustee of both bankruptcy estates he/she is likely to hold 100% of the beneficial interest in the property. In such circumstances it could be argued that the official receiver is in control of the premises and so liable for any breach of the duty of care and potentially legal action could then be taken against the official receiver as trustee. The official receiver should therefore ensure adequate insurance cover is in place where required (see paragraphs 31.12.78 to 31.12.79).
The bankrupt and joint owner (or bankrupts where both joint owners are bankrupt), as landlords, will be responsible for ensuring there is sufficient landlord insurance (including public liability) in place. The official receiver should obtain a copy of any policy document held by either joint owner, for information, and get his/her interest noted on the policy. The official receiver should obtain either public liability or both public liability and buildings insurance as appropriate (see paragraphs 31.12.31 to 31.12.33).
The official receiver should not wait to be appointed as trustee before dealing with the insurance requirements, but should obtain it where necessary as soon as he/she becomes aware of the need for insurance (see paragraphs 31.12.30 to 31.12.34).
If the official receiver obtains insurance under the Willis Insolvency Open Cover Insurance Facility, this should be continued for as long as the bankrupt’s beneficial interest in the property remains vested in the official receiver, or until the bankrupt and joint owner obtain their own insurance and evidence of this is provided to the official receiver.
Reference should be made to Chapter 49, Part 3 for advice on how to obtain cover. This is done by ensuring the case is added to the premium bordereau for smaller non-trading cases on a monthly basis (see Chapter 49, paragraph 49.27 and Part 1 paragraphs 31.12.30 to 31.12.34).
Where a jointly owned tenanted property is a commercial property, the Willis Insolvency Open Insurance Policy (see paragraph 31.12.34) will not apply and the official receiver will need to open a quote from Willis for insurance on a case by case basis. In order to provide a quote for insurance to the official receiver the nature of the business undertaken from the premises concerned will need to be provided.
Where there is a tenant in occupation of a jointly owned tenanted property, the bankrupt and joint owner remain as the landlords and retain all the rights and responsibilities under the terms of the AST. As the official receiver does not become landlord, the official receiver has no reason to be in contact with the tenant beyond the initial enquiry stage.
When he/she becomes trustee, the official receiver should write again to the bankrupt (Annex I) informing him/her that the official receiver is now trustee and that the bankrupt’s beneficial interest in the property vests in him/her as trustee. This letter informs the bankrupt that the beneficial interest includes his/her share of the rental income less direct costs relating to the tenancy agreement. The letter requests that any monies due to the official receiver, as trustee, are remitted on a monthly basis (or a different period of time depending on the terms of the AST), see Part 3 for guidance on calculating this amount.
Additionally the letter informs the bankrupt that the capital element of any mortgage payments due in relation to a mortgage loan on the property are not an allowable deduction from the bankrupt’s portion of the rental income received (see paragraphs 31.12.148 - 148A and 31.12.91).
Unlike solely owned property, the official receiver cannot object to the bankrupt or solvent joint owner moving into the property should any tenant subsequently vacate the property, as it is only the bankrupt’s beneficial interest and not the legal interest which vests in the official receiver as trustee (see paragraph 31.12.72).
When a ‘lodger’ is living with the bankrupt in his/her home, the notice offering the bankrupt and joint owner the option to purchase back the interest [note 5] should still be sent when the official receiver becomes trustee and the bankrupt’s interest in the property is greater than £1000, as the property is still the family home of the bankrupt (see paragraphs 33.22-22A and 33.28-33.28A). Additionally the notice to the bankrupt and other interested parties informing them that the property falls under section 283A should be sent [note 6].
It is important to remember that a tenanted property is not usually a family home for the purposes of section 283A (see Chapter 31.3, Part 3), and as such the bankrupt’s beneficial interest will not re-vest in the bankrupt after three years, it will remain in the bankruptcy estate until it is dealt with (see Part 4). Tenanted property encountered by the official receiver will normally fall into one of the four categories below:
If a property were to be let to a former spouse of the bankrupt, for example, it could be both a tenanted property and fall within the scope of a family home for the purposes of section 283A (see paragraph 31.12.87).
In situations a. to c. referred to in paragraph 31.12.85, the letter offering the bankrupt and the joint owner the option to purchase back the interest, [note 5] which should normally be sent when the official receiver is trustee, should not be sent, as the low cost property conveyancing scheme is for the protection of the bankrupt’s home and so is not appropriate when dealing with an investment property.
In addition, the letter to the bankrupt and other interested parties informing them that the property falls under section 283A [note 6] should not be sent. Where there is a solvent joint owner, he/she may be able to purchase the bankrupt’s beneficial interest in the property from the official receiver, as trustee, but this should not be offered as a matter of course. See Part 4 for details of the circumstances where the official receiver, as trustee, may consider selling the bankrupt’s interest in a tenanted property.
When ascertaining the details of any tenancy agreement the official receiver should give consideration to the relationship of the tenant to the bankrupt. Where the occupier is the bankrupt's spouse, civil partner, ex-spouse or ex-civil partner and the property is the sole or principal residence of that person then the property may be considered to be a family home [note 7]. In such circumstances it is unlikely a formal tenancy agreement as described in this chapter exists as the occupier is likely to be the joint owner. In such circumstances it may be appropriate, where the bankrupt’s interest in the property is greater than £1000, to send the notice offering to purchase the interest in the family home [note 5] to the bankrupt and any joint owner (see Chapter 31.3, Part 3)
When appointed as trustee of a bankrupt’s estate, the official receiver should send a further letter to the joint owner of the tenanted property (Annex J) informing him/her that the bankrupt’s beneficial interest has vested in the official receiver as trustee. The letter explains that the bankrupt’s beneficial interest includes his/her share of rental income less direct costs, but that direct costs do not include any capital element of mortgage payments due in respect of any mortgage loan on the property (see paragraphs 31.12.148 - 148A and 31.12.192). The letter further informs the joint owner that the bankrupt has been requested to pay his/her share of the profits from the rental income to the official receiver, as trustee.
The letter also states that the tenancy agreement remains the responsibility of the bankrupt and joint owner as landlords. This is the case even when both joint owners are bankrupt.
As the initial letter to the tenant (Annex E) from the official receiver informed the tenant that the bankrupt and joint owner retain the landlord’s responsibilities post the date of the bankruptcy order, including the collection of rent, there is no need to write again to the tenant once the official receiver becomes trustee.
When the official receiver becomes trustee of the bankrupt’s estate, he/she should notify the mortgagee that the bankrupt’s beneficial interest in the property now vests in the official receiver, as trustee of the bankruptcy estate (Annex K). This letter informs the mortgagee that the bankrupt and joint owner remain as landlords of the property and retain all rights and responsibilities under the terms of the AST. The letter explains that the official receiver, as trustee, is entitled to the bankrupt’s share of the rental income less direct costs, which do not include the bankrupt’s liability in respect of any capital element of the mortgage loan payments under the terms of a mortgage loan on the property (see paragraph 31.12.91). The letter makes it clear that the official receiver does not consider that mortgage loan payments in respect of any mortgage loan on the property are a direct cost under the terms of the AST agreement.
The letter also informs the mortgagee of the insurance position (see paragraph 31.12.30).
The mortgagee has no right to receive the rental income arising from the property as long as the mortgagee allows the mortgagor to remain in legal ownership of the property (see paragraph 31.12.92 below). Whilst the mortgagors (the bankrupt and joint owner) remain in possession, they are free to utilise the rent without need to account to the mortgagee. This is, of course, subject to the right of the trustee in bankruptcy, as the beneficial owner, to receive the bankrupt’s share.
The asset that vests in the trustee is the bankrupt’s beneficial interest, which comprises the bankrupt’s share of profits arising from the property, including the rent received (see Part 3).
As soon as a receiver of rents of a jointly owned tenanted property is appointed, or the mortgagee takes possession, it becomes the mortgagee’s responsibility to carry out the duties of the landlord, and their right to collect the rental income, including arrears [note 8] [note 9]. See Part 4 for more information on a receiver’s powers.
Upon becoming trustee the official receiver should write further to the letting agent (Annex L) stating that the bankrupt and joint owner remain as landlords and that the bankrupt’s beneficial interest vests in the official receiver as trustee.
The letter requests that the bankrupt’s share of any balance held on account, after the deduction of the costs of the tenancy agreement, should be forwarded to the official receiver (see paragraph 31.12.94).
The official receiver should take care not to interfere in the collection of rent as to do so, may result in a new tenancy agreement being created between the official receiver and the tenant. The official receiver as trustee should seek to obtain the bankrupt’s permission to collect his/her share of the rental profits from the letting agent on his/her behalf. Where this permission is not forthcoming the official receiver as trustee should request the letting agent to collect the rent according to the contract he/she has with the joint owners but to pass the bankrupt’s share of the (net) rental profits to him/her as trustee of the bankrupt’s estate (Annex L).
If the letting agent is owed money by the bankrupt at the date of the bankruptcy order, then the agent is a creditor in the proceedings for that amount. The agent should not be allowed to deduct this debt from the bankrupt’s share of future rent collected although, in practice, this may prove to be difficult to prevent, especially if the agent were to be able to claim a lien on the future rent receipts. In certain circumstances, where the services of the letting agent are required for the future management of the property and the amounts are not significant, it might be preferable to permit such deduction as being in the best interests of the creditors.
The official receiver, as trustee, will need to calculate how much of the bankrupt’s share of the rental income he/she is entitled to as trustee. This should be calculated as the total rent paid by the tenant less any allowable direct costs covering the landlord’s obligations to arrive at a net profit figure. For further information in calculating this figure, see Part 3.
The official receiver, as trustee, should collect the bankrupt’s share of the rent less direct costs (see Part 3) from the bankrupt as soon as he/she becomes trustee. The bankrupt’s share of the rent should be collected in full from the date of the bankruptcy order, including any arrears arising prior to the order, if received by the bankrupt after the making of the bankruptcy order (see paragraph 31.12.103). The official receiver should ensure that any rent that was held by the tenant or letting agent pending his/her appointment as trustee is also accounted for.
The bankrupt’s share of the profits from rental income should be collected whether there is a current AST agreement in place or not. But an invalid tenancy should not be validated by this action, were that to be possible to avoid.
A tenancy is still current if an AST has ended but the landlord has allowed it to continue verbally, as by default, the tenancy continues as a statutory periodic AST with the same terms and conditions as the former agreement [note 10] (see paragraph 31.11.18). In this situation the bankrupt’s share of the rent should continue to be collected.
The bankrupt’s share of profits from rental income receivable from an AST agreement forms part of the bankrupt’s beneficial interest that vests in the official receiver when he/she becomes trustee of the bankrupt’s estate. As this beneficial interest vests in the official receiver, as trustee, it is not therefore treated as the bankrupt’s income for IPA/IPO purposes. The collection of the bankrupt’s share of rental income by the official receiver should not affect any IPA/IPO calculation. See Chapter 31.7 for guidance on IPA/O’s. The exception to this is where the bankrupt has a lodger residing in their home under a licence rather than tenancy agreement, see paragraphs 31.12.58 to 31.12.60.
The official receiver should only cease to collect the bankrupt’s share of the rent after allowing for direct costs in the following circumstances:
(a) When the mortgagee appoints a receiver of rents (see paragraph 31.12.191 to 31.12.195),
(b) When the mortgagee takes possession (see paragraph 31.12.180 to 31.12.190),
(c) When the bankrupt’s beneficial interest in, or the property itself is sold to a third party (see paragraph 31.12.168 to 31.12.179).
The official receiver, as trustee, should continue to collect the bankrupt’s share of the profits from the rental income even after the bankrupt receives his/her discharge as the bankrupt’s beneficial interest in the jointly owned property and the tenancy agreement are assets that vest in the official receiver as trustee from the date of the bankruptcy order.
The bankrupt’s share of the rental income should be collected by the official receiver, as trustee, in the circumstances detailed in paragraph 31.12.97 whilst waiting for the mortgagee to reply or to take other action. The mortgagee does not have any right to the rent until it either a) enters into possession of the property or b) appoints a receiver of rents. In the meantime, the bankrupt’s share of the profits from the rental income should be collected for the benefit of the bankrupt’s estate.
The official receiver should not allow the profits from rental income to build up over a period of time but instead should arrange to collect the monies on a monthly basis (or for the same period referred to in the AST). If the mortgagee appoints a receiver of rents or enters into legal possession of the property, the receiver will be entitled to collect any rents that have yet to be collected by the official receiver, including any arrears, and consequently this rental income would be lost to the bankruptcy estate [note 11]. See paragraph 31.12.92.
When dealing with a jointly owned property where the tenant is in arrears of rent at the date of the bankruptcy order, it remains the bankrupt and joint owner’s responsibility to collect those arrears. This is because the monies are due to the landlords under the tenancy agreement which is not an asset that vests in the trustee. It is the beneficial interest in the property which vests in the trustee, which includes any rental profits under the terms of the AST agreement.
Where rent arrears are collected by the bankrupt and joint owner, the official receiver, as trustee, should then claim the bankrupt’s share of those arrears after allowing for the payment of any direct costs, see paragraphs 31.12.129 to 31.12.148 on allowable costs.
The official receiver should collect the bankrupt’s share of the rental profits by requiring the bankrupt to send the monies to him/her on a monthly basis (or a different period of time depending on the terms of the AST) along with a copy of any receipts for deductions made from the rental income (see Part 3 and paragraph 31.12.128 in particular for guidance on calculating this amount). If a letting agent has been used to collect the rent, ideally the bankrupt’s share of the net rent should be remitted to the official receiver by the agent (as this affords greater protection in its collection).
All of the bankrupt’s share of rental profit collected by the official receiver, as trustee, in respect of a jointly owned tenanted property should be banked in the estate account in the usual manner. This applies even where the bankrupt is the joint owner of more than one tenanted property. It is the responsibility of the local office to ensure that the profits from the rental income due in relation to a particular tenanted property have been received.
To ensure that the official receiver can account for the amount of the bankrupts share of rental profits received in respect of each property, a schedule of payments received should be kept. Information relating to expenses considered allowable in respect of each property should also be retained on the schedule. This information is necessary to assess whether a property interest is a valuable asset or onerous, leading to the possibility of it being disclaimed.
The bankrupt and joint owner, must ensure that where a deposit was taken after 6 April 2007 and it has been retained, that it is preserved in one of the government schemes for rental deposits (see paragraphs 31.12.48 to 31.12.52). If the bankrupt has retained a deposit in a bank account rather than a proper scheme, then when the official receiver becomes trustee he/she should release the funds to the joint owner for securing (see paragraph 31.12.107).
The official receiver should ensure that where a deposit is held by the bankrupt (other than in a deposit scheme), and these monies can clearly be identified as the original deposit money at the date of the order, then the monies should be released to the solvent joint owner to protect. Where both joint owners are bankrupt, then the deposit will need to be released to the bankrupts with a letter informing the bankrupts that they have a responsibility as landlords to place the monies in a recognised deposit scheme. The letter should be copied to the tenant so that the tenant knows that the monies have been returned to the bankrupts.
The official receiver is not responsible for any repairs or maintenance of the property. These remain the responsibility of the bankrupt and joint owner as landlords. When calculating the amount of the bankrupt’s beneficial interest in the rent, deductions can be allowed for actual costs of repairs and maintenance carried out by the landlords. See Part 3 for information on calculating the bankrupt’s share of rental profits.
The Housing Act 2004 provided for a new system of assessing the condition of residential premises. A local authority must review the housing conditions in their area and if they consider a property should be inspected with a view to determining whether a hazard exists, they must arrange for such an inspection to take place [note 12].
If a Local Authority inspects a property and finds it to be dangerous, it can take enforcement action by serving improvement notices, prohibition orders, or hazard awareness notices. There are also emergency measures that may be taken, or in worse case scenarios, slum clearance declarations or demolition orders may be obtained. Generally, a notice will firstly require the landlord to put the hazard right [note 13]. If the official receiver is notified of or served with one of the above notices, he/she should write back notifying the authority that as the property is jointly owned, only the bankrupt’s beneficial interest vests in the official receiver, and that the bankrupt and joint owner remain responsible for the property. A copy of the correspondence should be sent to the other joint owner/owners.
Where the bankrupt receives such a notice, an allowance should be made for the bankrupt to pay for the costs of rectifying the hazard from the rent (see paragraph 31.12.146).
As a jointly owned tenanted property is considered to be an ‘investment’ rather than a business (see paragraph 31.12.11), the ‘tool of the trade’ exempt property provisions are not applicable [note 14]. Any other items used for the purposes of the investment (for example furniture in furnished rented property), cannot be claimed by the bankrupt as exempt property [note 14], as they are not required to meet a basic domestic need of the bankrupt or his/her family. The only exception to this would be where the bankrupt’s spouse, civil partner, ex-spouse or ex-civil partner were living in the rented property as a tenant (see paragraph 31.12.87).
It can also be argued that the property is not ‘necessary to the bankrupt for use personally’, as with a business that provides equipment for hire. See Chapter 30, Part 2 for further information.
When the official receiver encounters property owned by the bankrupt on a jointly owned leasehold basis, which has subsequently been let out on an AST, there are very few differences to dealing with jointly owned freehold property. When the leasehold property is jointly owned, the legal title does not vest in the official receiver as trustee, and so it is not the official receiver’s responsibility to determine whether the lease allows the bankrupt to sub-let the property or not.
When dealing with jointly owned leasehold property, the lease usually contains a requirement to pay ground rent, either annually or monthly. It is effectively a rent charge for the underlying freehold land where the leasehold is situated. The official receiver, as trustee, should allow the ground rent as a deduction from the rental income when calculating the bankrupt’s beneficial interest in the AST on a jointly owned leasehold property (see Part 3).
Service charges are a requirement to pay, for example, for the upkeep of a communal area, and are often payable on flats owned on a leasehold basis. Service charges should be allowed as a deduction from the rent by the official receiver, when calculating the bankrupt’s beneficial interest as trustee, see Part 3.
Any profits from renting out a property are taxable and are treated as income for income tax purposes, see Chapter 77, paragraph 77.37. Generally speaking, profits are considered to be all rental income received less all allowable expenses (as specified by HM Revenue and Customs on the Directgov website http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435). Where a tenanted property is jointly owned, it is the obligation of the bankrupt, and the joint owner, to account for the tax due to HM Revenue and Customs from the rental income. Taxation is an allowable cost by the bankrupt when accounting to the Official Receiver, as trustee, for his/her share of the profit (see Part 3).
When the property being rented out is owned and rented out by two or more individuals, the tax due is on the profits each individual has earned. On the tax return, each individual should show their share of the rental income and expenses and their share of the profit or loss.
When dealing with jointly owned property, any solvent joint owner will be responsible for their own tax return accounting for their share of the rental profit, and the official receiver should submit a tax return on behalf of the bankrupt for the rental income and profit received from the bankrupt’s beneficial interest (see paragraph 31.12.116 below).
As explained in paragraph 31.12.11, property letting is not considered to be a trade by HM Revenue and Customs, but is considered an investment, and the official receiver must account to HM Revenue and Customs for tax due on any investment income (see Chapter 77, paragraph 77.37). Rental income is not classed as 'earnings' and so is not subject to National Insurance Contributions. The official receiver, as trustee, should complete the tax return for the bankrupt’s share of the rental income and profit. Tax returns are due by 31 January in the year following the end of the tax year. All rental income is accounted for on a standard tax period of 6 April to 5 April. Therefore if the bankruptcy order was made on 2 May 2009, income tax is due from the official receiver on any income received in the tax year 6 April 2009 to 5 April 2010, and the tax return and payment would be due by 31 January 2011.
For further information see the HM Revenue and Customs website http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013435
Should the official receiver need to complete a tax return for the bankrupt, the official receiver will need to provide a breakdown of the rent received by the bankrupt, the allowable deductions made, and the final rental profits paid to the official receiver. The bankrupt is asked to provide copy receipts for any deductions made from the rent in the letter sent to the bankrupt when the official receiver becomes trustee (see paragraph 31.12.82 and Annex I).
Allowable deductions from rental income for taxation purposes are based on actual expenses incurred in that taxation period. Note it is the period the expense was incurred in or invoiced in and not the date it was actually paid that is relevant for tax purposes. Deductions from rental income are allowed for:
If the annual rental income received is less than £15,000 before deducting expenses, then only the total for the expenses needs to be entered onto the tax return and not a breakdown of each expense. See http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027 for more information on allowable expenses.
When the bankrupt has more than one tenanted property, all the rental income received should be added together for taxation purposes. Income tax is due on the rental income due in the relevant period minus allowable deductions (see paragraph 31.12.117). All of the rental income for that period is added together and then all of the allowable expenses are added together and deducted from the income figure, leaving the amount of net profit made in that period. Tax is payable on the net profit. A loss from one property can be offset against the profit from another property.
Where the bankrupt is renting out a room in their home (under a licence rather than tenancy agreement, see paragraphs 31.12.58 to 31.12.60), then tax is not payable provided the total income generated is £4,250 or less a year. This includes rent and any other income paid by the lodger for meals, bills etc. Tax is only payable on anything received above the £4,250 allowance. This allowance will still apply to the official receiver as per paragraph 77.37.
Holiday lets and foreign letting taxation is generally calculated in the same way as for AST’s. Tax is payable on income from overseas property whether or not the money received in rent is brought into the UK. Holiday lets are now treated the same for tax purposes as residential lettings – prior to 6 April 2010, a capital allowance for the replacement of furniture was available. The landlord can now only claim a wear and tear allowance of 10% of net rent, which is claimable on all furnished lettings. See http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017930 for more information. With foreign property, the income needs to be declared on the foreign pages of the tax return. Where more than one foreign property is held, it is classed as one business, and all foreign rental income and deductions are taken together. Where a UK rental property is also held this is kept separate from overseas property, and they are treated as two separate businesses for tax purposes.
A property investment business does not need to register for VAT, as the letting of residential property is an exempt supply for VAT purposes. The letting of holiday accommodation is standard rated for VAT (currently payable at 17.5% of all taxable supplies), although it is unlikely to reach the threshold for compulsory registration. In the tax year 2009/2010, the threshold for compulsory registration was £68,000. See the Directgov website for further information on VAT. http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015895
The official receiver needs to keep all records for the rental income received for 6 years after the tax year they are for. This should include any papers relating to the calculation of the bankrupt’s beneficial interest in a property and the AST and papers relating to receipts of rental profit from the bankrupt, and LOLA records that have been provided to, or generated by the official receiver.
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