Repairs to property and tax

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

    Repairs to property and tax

    Hi there,

    I am new, but have been referred here as a good place to get advice on everything Landlord related.

    Does anyone have any advice on the below, please?

    I and two others own a leasehold flat each in a converted building (big house)
    We are also directors of the company that owns the freehold
    We issue the leases, manage and maintain the property
    We charge a nominal amount (£50 per flat per month) service charge at present
    We (the Ltd co) has a £9-11K bill to fix the fire escape (communal)
    We have to pay this as directors of the Ltd company as the Ltd company doesn't hold that amount of capital
    Can this cost be passed on to the leaseholders (who are ourselves)
    And that cost be taken off the respective leaseholder tax liability in the financial year it is incurred?
    If it can be passed on, does it have to be a monthly increase to the ground rent/service charge or a lump sum?

    I'd appreciate any help and can provide further info if required.

    Many thanks

    #2
    I think you have rather more problems than just tax!

    You cannot charge a nominal service charge. The service charge needs to be based on realistic estimates of the cost of doing those things that the the lease requires the freeholder to do, and under and overestimates should be corrected such that, in the long term, the leasholder only pays the amount due.

    Under a normal lease, the service charge money never belongs to the company. It is held in trust.

    For the rest of your questions, we need to see the actual wording of the lease as far what can be paid for from the service charges is concerned, but I rather suspect you have defective leases.

    Validly charge service charges are allowable against the costs of a business use of the flat. They are not allowable against the costs of owner occupation.

    Comment


      #3
      Thank you for your response, I appreciate it.

      Let me correct myself when I say nominal - that number is calculated based on long terms works that need doing on the property (painting in the communal areas), and ongoing maintenance (gardener, cleaner - for communal areas). We never keep a large balance and submit audited accounts to companies house every year via an accountant. We don't take any money from the account, that is all spent on the property.

      In principle, given on the fact that the repairs are required, can we pass this cost on to the leaseholder through increasing the service charge?

      Interested to understand what makes you think we have defective leases? If the leaseholders are ourselves, is this an issue?

      I will dig out the lease too.

      Many thanks

      Comment


        #4
        With a normal lease, the money would not appear on the company balance sheet, so would not be visible to Companies House. It would be held under a statutory trust (L&T 1978 s42) and any interest would be taxed at discretionary trust rates (currently nil where the the tax would otherwise be less than £100).

        Keeping a balance from year to year requires specific terms in the lease permitting sinking or reserve funds.

        In general your questions cannot be answered without seeing the details of your leases.

        There are possible unusual arrangements in which the money is not a service charge, but we would need to see the company articles, for that, and I'm not entirely convinced you can evade landlord and tenant law, that way.

        Note that, for service charges, a £3k+ charge per leaseholder, you will need to do a section 20 consultation.

        A typical lease would have a clause requiring payment within a few weeks of demand of any excess service charge, but we don't even know whether the money in question can be charged as a service charge, or whether your lease does have a clause allowing immediate, supplementary, demands.

        Comment


          #5
          Thank you, that provides more clarity - appreciate it. I will review my lease and come back with further info.

          Many thanks

          Comment

          Latest Activity

          Collapse

          • CGT Relief for PP ?
            JimmyJ
            This relates to a property that was our family home for a number of years then which we rented out for a number of years and which we then sold. I understand about the CGT reliefs for private residence and rental periods. But when we put it on the market we were advised by the agent to a) repaint the...
            12-10-2019, 08:38 AM
          • Reply to CGT Relief for PP ?
            Gordon999
            The work ( painting rendering ) was requested by the estate agent and should be charged as a " sale preparation cost " . This cost should be treated as similar to estate agent's commission and advertising cost , and charged against the sale price ....
            12-10-2019, 21:01 PM
          • Reply to CGT Relief for PP ?
            AndrewDod
            Disagree with you on this one JP. HMRC give pretty clear examples:

            Explanation A repair to an asset restores it to what it originally had been and is normally an allowable revenue expense. For example the cost of replacing roof tiles blown off by a storm. The cost of alterations, however,...
            12-10-2019, 19:12 PM
          • Reply to CGT Relief for PP ?
            JimmyJ
            Just to clarify. It was empty at the end of the previous tenancy because the tenants didn't want to renew for a short period and I didn't want to renew for a year , so as not to compromise the sale. During the empty period I tried to let it short term but that did not happen....
            12-10-2019, 13:16 PM
          • Reply to CGT Relief for PP ?
            jpkeates
            A property remains part of a rental business until sold*, even if the last tenancy ends some time previously.
            Painting to increase the capital value can be a capital expense (or could equally be maintenance).

            *Or the landlord moves into it, converts it to a holiday let etc etc.
            12-10-2019, 12:47 PM
          • Reply to CGT Relief for PP ?
            AndrewDod
            Although painting is never a capital expense unless it is something highly unusual. Not everything is a capital expense - especially if it replaces or maintains something that was there. If the repair is something that tends to be reoccurring or could be recurring -- repair of existing appliances,...
            12-10-2019, 11:30 AM
          • Reply to CGT Relief for PP ?
            JimmyJ
            Thanks for the prompt reply - Jimmy...
            12-10-2019, 10:22 AM
          • Reply to CGT Relief for PP ?
            jpkeates
            If the work was done while the property was part of the business (between it being let and sold) they're capital expenses for the business.
            12-10-2019, 09:05 AM
          • Sole owner of property, splitting income with Wife
            tommys
            Hello,

            can someone please advise on this scenario:

            1. I own the property and my name is on the mortgage and the title
            2. Can I split the income with Mrs 50/50? (married partner).


            I am getting told if i were to die then the property will goto Mrs...
            11-09-2019, 16:18 PM
          • Reply to Sole owner of property, splitting income with Wife
            jpkeates
            A basic trust for an owner and non owner varies the beneficial ownership and not the title ownership.

            They're available from a couple of on line conveyancers and seem to have been originally designed to formalise the trust element of beneficial ownership - where someone pays a deposit and...
            10-10-2019, 13:28 PM
          Working...
          X