pre-rental expenses are capitol or revenue?

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    pre-rental expenses are capitol or revenue?

    Hi. Seems to be some mixed messages here. Our flat was let out, then we bought it as it became empty, there was a gap of a few months while it was empty and we refreshed it thoroughly, then let it out again. I assumed that the money we spent on painting and decorating was a revenue expense, as we were just bringing the place back up to normal standards. However, I've also seen suggestions that as this was pre-rental stage this is automatically a capitol expense (like doing the place up might be classed) because the price we paid might have reflected this (it didn't, we just wanted it to look as nice as possible to attract good tenants and not need decorating for a couple of years). Can anyone shed any light please?
    I can understand knocking thorough walls or a new fancy kitchen will be capitol expense, but decorating is surely revenue expense (I hope!) as houses are not generally devalued just because the paint scheme is old... its because the kitchen is old or the roof needs fixing etc.
    thanks
    B

    #2
    Originally posted by bowsden View Post
    we were just bringing the place back up to normal standards.
    B
    The above comment suggests that the property was not fit to let out and that should have been reflected in the price which you paid so it could be argued that it is a capital expense, which will be taken into account when you sell.
    You may be able to claim as revenue expenses some minor costs of freshening up to obtain a better tenant but not if the property needed decorating before it could be let out or in the very near future.

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      #3
      This is as much an art as a science.

      If the property was simply being kept up to a rentable condition, it's allowable against revenue.
      If the work increased the value of the property significantly it's probably capital.

      HMRC accept that maintenance work has an effect on the value of a property, because it's inevitable.
      A property with a new boiler is more appealing than one with a ten year old boiler - but the replacement is a maintenance event.

      I'd take the same approach with the decoration.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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        #4
        Painting and decorating at periodic intervals is a requirement under your lease and so it must be a maintenance expense.

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          #5
          Thanks for that. I wouldn't say the flat was sold cheap becasue the paint and windows were tired. I'd say we decided to do the work to get a better tenant and we could have let it as is with no issue. In that case I'd say its revenue expense, but as others have said,its not clear. If the windows were falling out or the paper peeling off the walls then maybe the flat would have been cheaper, but it was is ok order, just nit what we thought would attract a good tenant. Any further thoughts?
          thanks anyway

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            #6
            Treat it as maintenance.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              Originally posted by bowsden View Post
              Thanks for that. I wouldn't say the flat was NOT sold cheap becasue the paint and windows were tired. I'd say we decided to do the work to get a better tenant and we could have let it as is with no issue. In that case I'd say its revenue expense, but as others have said,its not clear. If the windows were falling out or the paper peeling off the walls then maybe the flat would have been cheaper, but it was is ok order, just nit what we thought would attract a good tenant. Any further thoughts?
              thanks anyway
              typo! meant to say was not sold cheap...

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                #8
                Update. Spoke to HMRC. This was not crystal clear but the answer seemed to be yes, pre rental expenses are revenue expenses as long as the flat was not in need of 'doing up' to rent. We could have let it like that but decided it would be easier to attract a tenant if we refreshed it and save on doing it again the year after. The chap also specifically said windows were revenue expense as long as they needed doing. And I can only claim for carpets replaced and not carpets adding to an already bare varnished floor... just as we suspected.
                Hope that helps.

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