Conversion inside a Ltd company - can I claim Annual Investment Allowance??

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Conversion inside a Ltd company - can I claim Annual Investment Allowance??

    Hi

    I bought a house which I had owned for several years as a BTL with my limited company (no issues here as had an independent valuation to demonstrate that it was at market value, etc). I wanted to crystallise the capital gains by using mine and my wife's personal CGT allowance.

    I then converted this house into two flats at a cost of approx £15k - I know that this is cheap but it lended itself easily to the conversion. At the time I was hoping to sell it after the conversion, but there was little / no interest despite advertising it so I have kept it as a nice gross 10-12% yield investment (cf the 8-9% that I was getting before the conversion) - although with a bit more effort as double the number of tenants.

    The house was in a tired condition and the majority of the conversion costs was refurbishment to make it ready for letting - painting, new carpets, repairing the roof, etc. There were however some costs which are due for the conversion - ie sound insulation on the walls, stripping out the old kitchen which was ancient and replacing it with a new shower room, and putting in a couple of kitchen units in the lounge of each flat, as well as the architect's fees, planning and building regs. I had a single invoice from the builder and have discussed with him about the breakdown (although not documented) and am pretty sure that I can come up with a fair and justifiable estimate of the costs of the conversion versus refurbishment (after all the amounts are small so I doubt that HMRC would be interested anyway but I want to be correct vis a vis paying the right amount of tax).

    My understanding is that especially since the company does other property related activities there is no problem with my simply writing off 100% the refurbishment costs as expenditure in my tax year. This is after all a direct business expense of letting and on querying HMRC about how to fill in rent from my property they told me to put it in as turnover. This is despite the refurb costs being a bit more than the rent in that year, and my company making an overall loss as I have made provisions for a bad debt. I am happy to just carry the tax loss forward to this current year which so far is profitable.

    What I am wondering about is how to treat the costs which are related to the conversion. I had initially planned to treat these all as capital costs and so simply treat them as an addition to the property value and not claim any depreciation or capital allowances - as even if I could claim these, the amounts seemed to be so small that it wouldn't be worth the effort.

    But I have been looking at the AIA (Annual Investment Allowance) and this allows 100% allowance for plant and machinery. Before I submit my annual accounts and tax return can I just double check my understanding that as per https://www.gov.uk/capital-allowance...u-can-claim-on AIA and in fact all of Capital Allowances do not apply for residential lettings. I had seen that for instance sound insulation counts as plant and machinery https://www.gov.uk/capital-allowance...u-can-claim-on but I guess that this is only for non residential letting.

    I don't use an accountant.

    #2
    You definitely need to consult a qualified tax accountant to reply to your questions. The accountant's charge is an allowable expense item against your rental income.

    I also have read the plant and machinery allowance does not apply to residential property income. But you should not rely on any free advice coming from this forum as being 100% correct because forum contributors are just lay-persons.

    Comment


      #3
      Thanks for your advice

      Comment

      Latest Activity

      Collapse

      • SDLT relief for multiple dwellings
        by BIGGYBIBIG
        Hello everyone,
        I have had an offer accepted on a property purchase, subject to a surveyors report of £395,000 in England.


        I am currently looking at surveyors but i just wanted to know where i stand in terms of stamp duty, costs etc.

        I have phoned 5 different solicitors
        ...
        10-08-2022, 19:20 PM
      • Reply to SDLT relief for multiple dwellings
        by BIGGYBIBIG
        Thank you, so am i right in saying Because I already own a property it would be 3% which is the higher rate band?
        As the
        SDLT relief for multiple dwellings would still apply but at the higher rate bracket?...
        10-08-2022, 23:25 PM
      • Reply to SDLT relief for multiple dwellings
        by DoricPixie
        As you already own a residential dwelling which is presumably worth over £40,000 the higher rate of SDLT will apply to your multiple dwelling SDLT calculation.

        https://www.gov.uk/hmrc-internal-man...ual/sdltm09766
        10-08-2022, 22:50 PM
      • Reply to SDLT relief for multiple dwellings
        by BIGGYBIBIG
        I don`t make the rules my friend,,, i could easily have bought a block of flats the other day,,, tenanted by most of them for over 5 years 10 years 12 years etc,,, all long term but the state of the place i would not let my dog live like that,,, if it were all about money that would have been a great...
        10-08-2022, 19:44 PM
      • Reply to SDLT relief for multiple dwellings
        by AndrewDod
        I don't know the answer, but if true this would be an absolute outrage.

        Some little kid buying their own home where granny left them a quarter of a house that is rented out pays 3% additional tax

        Someone who buys 8 properties pays 1%

        Pity us all
        10-08-2022, 19:32 PM
      • Reply to Passing it on
        by SouthernDave
        DD!!? This isn’t mums net you know...
        10-08-2022, 19:07 PM
      • Passing it on
        by royw
        I'm about to make a will and would like to check my assumptions are correct. Beneficiaries are OH (we're married) and DD. Some BTLs are in my sole ownership, others are joint tenants with OH. There is a large CGT liability on all of them if I were to sell. DD is an adult but IMO a bit too young for...
        10-08-2022, 14:16 PM
      • Reply to Passing it on
        by jpkeates
        The IHT threshold would be £650k.
        The other £350k applies for the disposal of the main residence only.

        Just been dealing with exactly all this.
        10-08-2022, 17:44 PM
      • Reply to Passing it on
        by Neelix
        Not sure I agree with this.

        As a married person on the first death the estate can pass to the surviving partner meaning the IHT threshold on their death will be £1 million, then on their death ........
        10-08-2022, 17:32 PM
      • Reply to Passing it on
        by AndrewDod
        1 - yes you can and will pay duplicate tax (assuming both types are due)
        2- Yes
        3- Yes
        4-regard as effectively two items -- 50% with base value as per your probate value (need a formal assessment), other 50% with initial purchase value (whether by you or spouse. For the first half...
        10-08-2022, 16:38 PM
      Working...
      X