Allowable Deductions

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    Allowable Deductions

    Hi,
    I have read extensively on allowable expenses, but wanted to clarify whether the following items are allowable. I have found explanations from the HMRC and other landlord forums unclear and inconclusive:

    1). Fee paid to mortgage broker to obtain mortgage.
    2). Mortgage arrangement fee. Also called a product fee. This was added to the mortgage principal.
    3). Mobile bill. Whilst I don't have a mobile contract exclusively for the business, I use my personal mobile to conduct the letting business. If the usage is 50% personal and 50% business, can i deduct 50% of the phone bill. Whilst it does not fulfil the HMRC requirement of 'wholly and exclusive', it seems silly to carry 2 phones.
    4). Having bought a property recently that had not been updated for 30 years, the flat required rewiring and a newer boiler (central heating previously present) according to the survey report. The flat was rewired and the boiler replaced with a more efficient one. Also the kitchen units were replaced but the units were basic. Is the rewiring, new boiler and new kitchen units tax deductible?

    Thanks

    #2
    1. and 2. Yes. But over the life of the loan. So a £2,500 fee, and a 25 year mortgage gives you £100 deduction annually. If you remortgage after 10 years, then the remaining £1,500 of fees become deductible in that year.
    3. Yes. Whilst you are theoretically correct, in practice HMRC allows apportionment. http://www.hmrc.gov.uk/manuals/bimmanual/bim37600.htm
    4. No. They are capital costs. You can either buy a cheap property and spend money on rewiring etc., or pay more for a property where somebody else has done that work. The tax treatment should therefore be broadly the same. It would be unfair to allow you a revenue deduction for those costs you mention.

    Comment


      #3
      Telometer, thank you for your reply.
      Regarding question 4 and following HMRC guidelines at website http://www.hmrc.gov.uk/manuals/pimmanual/PIM2020.htm, the purchase price of the property was not lower for a property in this state. If anything, I paid up for the property for its desired location. I could have rented out the property, but decided on the expenditure which were like for link and not lavish so that the flat could be rented more easily and possibly with a higher rent.
      The guideline on the HMRC website leans towards expenditure being more capital than repairs if the repair was made after the property was purchase. If the repairs had occurred 5 years after the purchase, would it then be 100% revenue expenditure?

      Thanks

      Comment


        #4
        Originally posted by topgun View Post
        The guideline on the HMRC website leans towards expenditure being more capital than repairs if the repair was made after the property was purchase. If the repairs had occurred 5 years after the purchase, would it then be 100% revenue expenditure?
        How could the investor effect repairs before the purchase?
        'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

        Comment


          #5
          Originally posted by topgun View Post
          so that the flat could be rented more easily and possibly with a higher rent.
          So there was clear improvement.

          If you'd waited five years it would more probably have been revenue.

          Comment


            #6
            even giving the flat a lick of paint will lead to it being rented more easily and maybe achieve a high rent which is rental deductable, so i am not sure where to draw the line.

            http://www.hmrc.gov.uk/manuals/pimmanual/PIM2020.htm reading this section from the HMRC, right at the bottom is states "Provided the kitchen is replaced with a similar standard kitchen then this is a repair and the expenditure is allowable".
            I guess it comes down to whether the refit is a repair of similar style (rent deductable) or a substantial improvement where the the kitchen has been enlarged (capital)?

            If you did make capital improvements, are keeping receipts sufficient for the tax man to be happy when you make a capital gain on your property say 20 years later? Or does he need proof of payment, credit card statement 20 years old?

            thanks

            Comment


              #7
              "Provided the kitchen is replaced with a similar standard kitchen then this is a repair and the expenditure is allowable"

              You're getting confused between general repairs, and significant expenditure on repair shortly after acquisition. You bought a property that had not been touched for 30 years. Hence expenditure likely to be capital. I suggest visiting an accountant.

              Comment

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