Which tax year?

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  • Which tax year?

    One of my btl properties was damaged by fire during the 08/09 tax year.

    The refurbishment began in January 09 and I received an interim payment from the insurance company also in January 09

    The work will not be finished until next month.

    Final settlement payments from the insurance company and payments for lost rent will be received next month.

    As the refurbishment has taken place in the 08/09 and 09/10 tax year how do I account for this...?

    Do I account for it in the 08/09 year as this is when the incident was incurred, or do I apportion the insurance payout and refurbishment costs into both tax years...?

    Any advice would appreciated

    Regards

    John

  • #2
    Originally posted by JDO View Post
    One of my btl properties was damaged by fire during the 08/09 tax year.

    The refurbishment began in January 09 and I received an interim payment from the insurance company also in January 09

    The work will not be finished until next month.

    Final settlement payments from the insurance company and payments for lost rent will be received next month.

    As the refurbishment has taken place in the 08/09 and 09/10 tax year how do I account for this...?

    Do I account for it in the 08/09 year as this is when the incident was incurred, or do I apportion the insurance payout and refurbishment costs into both tax years...?

    Any advice would appreciated

    Regards

    John
    Your insurance money, for re-instating the property, should have no profit element in it. It is paid to you to put your property back in the same state as it was prior to the damage. Therefore, there is nothing for you to declare on this front

    The monies received for the loss of the rental income, even if paid into the following financial year, should be treated as the income you would have received normally if the damage had not occured. Therefore, it is not the actual time of receipt of the funds but the time that it relates to that should be taken into account.

    P.S This may be a lot of bull. I am not an accountant but that is what logic would dictate should be done. Come to that, I am not an expert in housing matters, a solicitor or a barrister, a builder or a professinal of any description but I try.
    Kikuyu

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    • #3
      You need to avoid double counting. So, to the extent that you tax insurance proceeds, you relieve the expenditure; and if you are not taxing proceeds, then you should not be obtaining relief on your expenditure.

      So... whilst expenditure on decorating would normally give you a revenue deduction, when the cash has come from an insurance company you would obviously have to tax the receipt if you were to claim a deduction. ICTA s74(1)l therefore prohibits a deduction for any cost where the cost is recoverable under an insurance contract.

      Obviously the rental proceeds should be treated exactly as you would have treated actual rent received.

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