Keeping records for CGT and rental income separate ?

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    Keeping records for CGT and rental income separate ?

    I recently bought a house to rent out. Am I right in thinking that I should do two sets of accounts.
    Account 1. CGT account, List the purchase price, solicitors fees, stamp duty, and all the repairs we had to do structurally, decorating, carpets, paint windows, etc So if the purchase price was say £200,000 pounds and we spent £12,000 on stamp duty, solicitors repairs the figure we would keep for future reference would be £212,000 and if sold in future at £250,000 we would pay CGT on £38.000. Providing we kept all the bills.
    Account 2. Running expenses while doing the place up to be set against rental income being Council Tax, Insurance, Gas safe certificate, Electrical Safety Check.
    Obviously should the tenant leave any decorating between tenants would be classed as repairs, but before a tenant after purchase its added to purchase price. ?

    #2
    I'd keep everything , receipts, invoices etc etc etc spreadsheets, documentation together. You & I don't know what the rules will be in say 5 years time when eg new roof and/or replacement windows/central heating could move from one category of tax to another.

    There are at least 10 taxes a landlord may pay. Don't just worry about those 2!

    You say obviously but there's frequently nothing obvious about a chancellor's new plans
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


      #3
      The work to prepare a property for letting isn't usually all capital.
      Replacing carpets, painting and so on are all legitimate maintenance and repairs.

      Structural work might be either - it depends if you're adding capital value or simply making good.
      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


        #4
        Buy a book on property tax. It will save you more time & money than it costs to buy & read. e.g (there are other fine ones..)
        https://www.amazon.co.uk/gp/product/191102051X

        - but the rules on what is allowable against income tax and/or CGT keep changing: And with the HUGE costs of covid19 the chancellor - whoever, whatever party - will be changing taxes, and landlords aren't going to enjoy it....
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

        Comment


          #5
          Originally posted by jpkeates View Post
          The work to prepare a property for letting isn't usually all capital.
          Replacing carpets, painting and so on are all legitimate maintenance and repairs.

          Structural work might be either - it depends if you're adding capital value or simply making good.
          Thanks, For some reason I thought that after a tenant left and a landlord needed to fit carpets and decorate those costs could be put against rental income, but costs incurred before any tenant moved in would not be. If we bought the house intending to put it up for sale after we had done it up, all the costs of improvements, carpets, decorating, would presumably be added to the house costs to reduce CGT.
          Perhaps I am splitting hairs.

          Comment


            #6
            Buy a book and understand tax options under today's rules
            I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

            Comment


              #7
              Originally posted by Another Fine Mess View Post

              Thanks, For some reason I thought that after a tenant left and a landlord needed to fit carpets and decorate those costs could be put against rental income, but costs incurred before any tenant moved in would not be.
              You can claim as long as the costs were incurred within 6 years of the first day of the first tenancy and they are allowed as though they had been incurred on that date.
              If we bought the house intending to put it up for sale after we had done it up, all the costs of improvements, carpets, decorating, would presumably be added to the house costs to reduce CGT. Perhaps I am splitting hairs.
              No, you're just wrong.
              If you'd bought the house intending to do it up to sell it, the gain would be income, not capital.
              So you'd have used all of the costs as an allowance against income tax, not CGT.

              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


                #8
                theartfullodger,

                Thank you for the advice regarding the Tax.
                I looked up the book you recommended and found one on eBay at £2 delivered and in it my query is answered.

                Comment


                  #9
                  Good. But it may be an old edition not up to date with all current regulations. It's republished every year...
                  I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

                  Comment


                    #10
                    You've broadly got it! However, expenditure incurred up to 7 years prior to the commencement of a business activity are allowable for income or corporation tax purposes as though they had been incurred on the first day of the activity commencing provided they would have ordinarily been allowable revenue expenses.

                    That basicially means that as long as the expenditure isn't capital (i.e. a loft conversion, extension or anything else that adds capital value), you will be able to deduct it from your rental income.

                    An accountant would ordinarily keep one set of accounts and record all purchase costs and any ongoing capital costs on the fixed asset element of a balance sheet (useful for a future disposal) with all income and expenditure going through the profit and loss sheet. What you suggests does exactly the same thing though.

                    Comment

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