Pre-rental works and tax relief

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  • Pre-rental works and tax relief


    I am just about to get hold of a property that I am hoping to let out but before that there are some things that need doing on the flat. Firstly, there is £5000 worth of penetrating damp to sort out (it is a basement flat). Secondly, there are some alterations to the layout I need to do. Thirdly, I need to re-vamp the bathroom - I will be keeping the suite but retiling and painint. Fourthly, the electrics need modernising. Finally, I will be giving the whole place a lick of paint as I don't think it has been done for a while. My question is - can any of these expenses be claimed back from the profit on the rental before I have to pay tax on the profit? Also, what are the other main expenses you can claim, such as the cost of finding a tenant (I hope to use an estate agent to find me a tenant but then manage it myself), and gas safety checks etc?

    In case it helps with an answer here are some of the quoted costs for the work:

    Damp work - £5000

    Layout alterations - £1750

    Bathroom revamping - £750

    Electric modernising - £1250

    General decorating - £750

    Any help would be much appreciated...

  • #2
    Repairs / Renewals

    I agree with everything Wickerman says.
    Just one small point - it's a good idea to post your questions on the relevant section - tax questions - as our chartered accountant Topic Experts will see it there.
    The Inland Revenue Guide IR150, which was the bible on this, I believe, has been, or is being, replaced. There's a good guide here:
    In my experience there are some "grey" areas between repairs and renewals and a lot depends how you construct your claim.
    An improvement to one person is a repair to another and your accountant is unlikey to be able to distiguish properly - you need to study the rules yourself so that you can put the best possible explanation to your accountant and apportion accordingly.


    • #3
      @ Editor - thanks for the above link. It certainly amplifies the information provided in my how to fill in you tax return documentation from the same source.
      Vic - wicked landlord
      Any advice or suggestions given in my posts are intended for guidance only and not a substitute for completing full searches on this forum, having regard to the advice of others, or seeking appropriate professional opinion.
      Without Plain English Codes of Practice and easy to complete Prescribed Forms the current law is too complex and is thus neither fair to good tenants nor good landlords.


      • #4
        Generally, any expense incurred in purchasing and preparing a property for the market are capital expenses and are not tax deductable.

        Where you have commenced renting the property out and then need to make repairs (tax deductable although some grey areas) or update (capital expenditure - non tax deductable)


        • #5
          I concur with Attila. Unfortunately, until you have actually let the property out, nothing you spend on the property can be offset against rental income, whether it's classed as essential repairs or material upgrading. You can, however, offset it against any future Capital Gains Tax for which you may be liable in the future when selling the property, so you should certainly keep records of anything you spend.


          • #6
            Expenses prior to letting

            Revenue expenditure incurred up to seven years prior to the letting of your first property, can be claimed as if it were incurred on day one of your rental business under the pre-trading rules. However, if the expenditure incurred is capital in nature e.g. an extension, then these costs would serve to reduce the end capital gain on sale.

            If you purchase a property in a dilapidated condition and this is reflected in the purchased price, it is likely the Inland Revenue will deem all monies spent to get the property in a postion to rent as capital in nature. However, if the property is OK to rent and you merely choose to do some decoration prior to letting then you should be Ok to claim these costs against the rental income.

            If you already have an existing rental business and you buy another BTL then you would still be OK to claim any revenue expenses against the rental income of your esisting business even if that particular property was not let.

            As other postings suggest the area of capital or revenue expenditure is can be very "GREY" and care should be taken!!

            I would also mention that if you are likely to make a yearly loss on the property which can never be used, there is little value in increasing the revenue losses in favour of possibly reducing the resulting capital gain.



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