Pre-letting expenses - Windows

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    Pre-letting expenses - Windows

    Hi

    I've just completed on my first BTL property and the first task will be to replace the single glazed windows with double glazed ones.

    Having read many conflicting postings on this forum regarding the grey area of replacement windows it now seems to be generally considered as an acceptable non-capital allowance.

    My complication of course is that these new windows will be installed before the first letting, so what are my chances do you think, of me being able to submit these costs as an allowable expense?

    After all, I suppose you could consider that the "business" began with the purchase of the BTL rather than the first paying tennant.

    Hoping you experts can help

    Kind regards

    #2
    It is my understanding that anything you do prior to the first letting is capital expenditure and therefore not claimable against letting income. And that includes furniture, fittings and any repairs/replacements necessary to set the property up.

    Comment


      #3
      Rental properties do not qualify for "capital allowances". But you probably didn't mean that anyway.

      These expenses will not be allowable, but capital. There is no grey area.

      Comment


        #4
        Thanks Tipper/Telometer for your advice.

        However, I'm still a little bemused by conflicting views which I have researched and I'm hanging on to a glimmer of hope that these pre-letting windows might still be allowable as an expense.

        It's now generally accepted that "HM Revenue and Customs will normally accept that repairs do not constitute an improvement merely because more modern materials are used, such as when a single-glazed window is replaced by a double-glazed window" and therefore become an allowable expense.

        If you couple HMRC's new found leniency and acceptance of replacement windows as an allowable expense together with the statement taken off their PIM2505 guidance

        "Beginning and end of a rental business: commencement"

        "Expenses incured before rental business begins"

        "Relief is only due under these special rules where the expenditure:

        would have been allowed as a deduction if it had been incurred after
        the rental business started."

        Does that not mean I could claim the pre-letting window replacement as an allowable expense?

        Comment


          #5
          No. You are getting confused. Any work (pretty much) prior to first letting the property counts as capital, and goes into the CGT calculation when you sell it.

          e.g. Repairing the roof. If the roof springs a leak whilst tenanted then it is tax deductible. If you buy a house with a leaking roof, then it is capital expenditure. Just like your windows.

          The technological advances point is a red herring. If you were to replace a broken single glazed window in a tenanted property with a double glazed unit then it would be tax deductible.

          Comment


            #6
            This area confuses many landlord.

            I can only paraphrase from a couple of books that I have says, one from Steve Sims a property consultant.

            Firstly, repairs are often required to bring a property up to standard before it's first let. This is clear.

            You can't reclaim improvement costs. Clear again.

            But any refurbishment that are repairs (not improvements) can go on the rental accounts if:
            - They are incurred no more than 7 years before first letting
            - You have not already claimed the expenses for tax purposes
            - You would have been able to claim the expense in the past if your rental business had already started

            If it passes these three rules then they can go on as though incurred on the day of first letting.

            Separate to this, windows can be 'repaired' with double glazing (rather than improved) as a concession from HMRC due to double glazing beng the only real viable option available.

            I don't know the answer so leave the above for comment

            Comment


              #7
              Thanks Telometer for your replies.

              Apologies for my persistence in chasing what I hope won't be a lost cause.

              I'm basing these hopes on the following paragraph taken from PIM2020,

              An example is double-glazing. In the past we took the view that replacing single-glazed windows with double-glazed windows was an improvement and therefore capital expenditure. But times have changed. Building standards have improved and the types of replacement windows available from retailers have changed. We now accept that replacing single-glazed windows by double-glazed equivalents counts as allowable expenditure on repairs.
              So from the HMRC guidance aren't replacement windows an allowable expense?



              Now if I add the next paragraph from PIM2505;

              Expenses incurred before rental business begins

              A taxpayer may incur expenses for the purposes of a rental business before that business starts. If so, they may be able to claim a deduction for them once the letting begins, (ICTA88/S401 or ITTOIA05/S57). Relief is only due under these special rules where the expenditure:

              would have been allowed as a deduction if it had been incurred after the rental business started.
              So considering both these paragraphs, do you not think there is any chance of my pre-letting window replacements being a permissible allowance?

              PS Thanks GJMSurrey, I've just read your reply which again fills me with some hope.

              Has anyone been able to get the definitive answer from a tax technician?

              Comment


                #8
                Either this Steve Sims bloke doesn't understand tax law (quite likely for a "property consultant" - even if he has written a book), or you have misquoted him.

                Originally posted by GJMSurrey View Post
                Firstly, repairs are often required to bring a property up to standard before it's first let. This is clear.
                What is also clear is that from a tax perspective these are likely mostly to be improvements. If you buy a house cheaply because it has had a maintenance holiday (and face it, most landlords do) then these costs are capital.


                But any refurbishment that are repairs (not improvements) can go on the rental accounts if:
                Very, very few costs will qualify under this heading:
                - They are incurred no more than 7 years before first letting
                This only refers to a property which you have acquired for letting purposes and it has taken you up to 7 years - or longer - to get into a state for letting.

                If e.g. you let your own home out, you cannot go back seven years and claim all repair costs for e.g. burst pipes. These were expenses incurred wholly and exclusively for the purposes of your living there; not wholly and exclusively for the purposes of your lettings business.



                http://www.hmrc.gov.uk/manuals/bimmanual/bim35450.htm makes the point very strongly that
                Originally posted by hmrc
                You should treat repairs expenditure following a change in the persons carrying on a trade, where the change is treated as a cessation/commencement, as revenue expenditure if the asset was in an adequate state of repair at the time of change. If abnormally heavy repairs expenditure is incurred on an asset shortly after the change of ownership the likelihood that it is capital is increased. But expenditure recurring at intervals of a few years (for example exterior painting of a building which has been deferred by the previous owner but which in the normal course of events falls to be expended shortly after the building is acquired) should be allowed.

                Separate to this, windows can be 'repaired' with double glazing (rather than improved) as a concession from HMRC due to double glazing beng the only real viable option available.
                Indeed. But remember, you can only get a deduction as a repair when it is a repair. If you buy a house with rotten single-glazed windows, then replacing them with new single-glazed windows is an IMPROVEMENT, not a repair. That you do it with double-glazed windows does not mean that it suddenly becomes a repair when a single-glazed window would have been an improvement, does it?!

                Comment


                  #9
                  Quote: What is also clear is that from a tax perspective these are likely mostly to be improvements. If you buy a house cheaply because it has had a maintenance holiday (and face it, most landlords do) then these costs are capital

                  Quote: Very, very few costs will qualify under this heading

                  Hmm, see my understanding (confusion) on the broader treatment was that there are two completely different sets of tax rules for propery investors and property developers (also, those doing both things need to keep two sets of accounts). The treatment depends on the original intention of the purchase of the property (buy to sell or buy to let). So for developers then yes it is capital, but investors (landlords) some of these items are indeed possible for pre-letting deduction, as it's an investment with said costs going against income whereas investors that hold "stock" of properties need to apply the costs against that particular (and different) business circumstance.

                  I admit to being a newbie with scatterred pearls of information, much yet needing to grow, but this is my knowledge to date (which will change).

                  QuoteIndeed. But remember, you can only get a deduction as a repair when it is a repair. If you buy a house with rotten single-glazed windows, then replacing them with new single-glazed windows is an IMPROVEMENT, not a repair. That you do it with double-glazed windows does not mean that it suddenly becomes a repair when a single-glazed window would have been an improvement, does it?!

                  I see what you mean here. Hmm, but what then is classified as a repair? My property when I purchased it had a chartered surveyor report generally saying how badly the windows were - to fix or replace - very old metal ones not working properly, rusty, letting out heat. I replaced them before I let out the property. Does this classify a repair do you think, and thus deductable?

                  Comment


                    #10
                    Originally posted by GJMSurrey View Post
                    [Hmm, see my understanding (confusion) on the broader treatment was that there are two completely different sets of tax rules for propery investors and property developers (also, those doing both things need to keep two sets of accounts).
                    Indeed. But that's not the capital revenue divide. That's stock when in the hands of a developer. All costs related to stock are capitalised into stock. And when the item is sold the profit is calculated as proceeds less cost - cost including all costs.


                    I see what you mean here. Hmm, but what then is classified as a repair? My property when I purchased it had a chartered surveyor report generally saying how badly the windows were - to fix or replace - very old metal ones not working properly, rusty, letting out heat. I replaced them before I let out the property. Does this classify a repair do you think, and thus deductable?
                    No I do not think it is a repair (from a tax perspective). You bought a run-down property which was cheaper on account of its metal windows. You would have happily paid more for a double-glazed property, wouldn't you. The tax treatment should, accordingly, be similar for the two scenarios.

                    http://www.hmrc.gov.uk/manuals/bimmanual/BIM35455.htm

                    Comment


                      #11
                      An old thread I know.

                      The summary of this seems to be that if you've just bought a place as a BTL and wish to replace the windows, it'll be viewed as a capital expense.

                      But what if you've owned the property say 2 years? Can you then change all windows and say its an allowable expense (double glazing is not an improvement these days, that's confirmed).

                      The question is, how long after buying a place do you need to wait for a window replacement to be allowable, not capital? It sounds like there must be a timeframe? 2 years? 5 years?

                      I wish to replace the windows in my BTL which ive owned 9 years (lived in for 5 years, rented out for 4 years) so I presume this is an allowable. But my other place Ive not had so long. Obviously the ideal is to put down as an allowable and effectively get 40% off, as opposed to maybe 28% CGT

                      Thanks

                      Comment


                        #12
                        Originally posted by bhodgkiss View Post
                        The question is, how long after buying a place do you need to wait for a window replacement to be allowable, not capital? It sounds like there must be a timeframe? 2 years? 5 years?
                        There isn't a time frame, the situation is based on the facts of the issue.

                        There's a practical issue, which is that the longer you leave it, the less likely HMRC are to challenge the issue (if they are likely to at all), but the tax situation doesn't change.
                        You either purchased the property at a lower value because of the windows you are now replacing or you didn't; all that the passing of time does is make it harder to spot or prove.

                        In real life, your tax return isn't going to be particularly detailed, so unless the expense is out of character for some reason, it's unlikely to be challenged simply because HMRC's resources are limited and focussed on people who don't pay any tax, not people who do, but use allowances.
                        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


                          #13
                          Thanks
                          But for example:

                          - I pay top price for a BTL which is 'seemingly' in great condition. The double glazed windows looks fine, but two years on all seals are going and all double glazing has moisture between the two glass panels. So there has been degradation over the first two years of ownership, so I should be able to replace all windows as maintenance, eg an allowable expense? No improvement has been made.

                          Comment


                            #14
                            I wonder if the situation will change when the govt introduces the minimum EPC standard which must be met before a property is let?

                            Comment


                              #15
                              Regarding the claiming of expenses prior to the first letting, I would assume that the fact it is a BTL mortgage would enable the claiming of valid expenses even prior to first letting.

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