Tax query - expenses and carrying over

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    Tax query - expenses and carrying over

    Hi, hoping someone can advise please. Having inherited a property that had no heating and electrical issues I had to borrow money to install full central heating throughout and get the electrics re-done (plus decorating, new carpets etc) to bring the property up to a rental standard. The total cost of this work equals more than I will receive for rental income so rather naively assumed that I won't owe anything in tax. I have two questions:
    Firstly: Is this work concidered an 'allowable expense' (bearing in mind I'm pretty sure I wouldn't have been able to rent it out with no heating and dodgey electrics)
    Secondly: All work was carried out before the end of March and the tenant didn't move in until May. So, with it being a different financial year, can I actually carry any of that expense over, or do I just have to accept that I'm going to be at a major loss and also owe full tax on the rental income?
    Thanks in advance

    #2
    There are two categories of expense and they are handled differently, some expenses are operational (like maintenance and repairs) and some are capital (like adding central heating or building a new bathroom), so you need to decide which expenses fit which category - which is more of an art than a science.

    Capital expenses are deducted from any gain in value when you sell the property, before calculating capital gains tax. Operational expenses are allowed against income, before calculating income tax.

    Operational expenses incurred before the first tenant moved in are treated as having been incurred on the first day of the first tenancy.
    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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      #3
      Did you get the property valued prior to doing the work? If not you may have an issue trying to minimise your CGT when you eventually sell it

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