Capital Expenditure or repair?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Capital Expenditure or repair?

    Hello all

    I've spent days trying to research if the cost I've incurred from two properties I've refurbished and rented this year fall under Capital expenditure or repair. HMRC, google, Landlord zone etc...

    The two properties I've bought have been habitable on purchase however BMW. I have spent money on refurbishing to a standard which has now improved the valuation of the properties. Nothing new has been added - no extensions etc, however most things have been replaced like for like. As an example, bathrooms and kitchens have been replaced, new central heating systems, rewiring, plastering and decoration, laminate flooring, tiling, carpeting and double glazing.

    I'm led to believe as the properties were bought then refurbished before letting out, all the work falls into capital expenditure rather than repair?

    Would this be correct?

    Cheers!

    #2
    Others will confirm, but I believe it depends on whether you had a rental/development business before you bought these places.
    To save them chiming in, JPKeates, Theartfullodger, Boletus, Mindthegap, Macromia, Holy Cow & Ted.E.Bear think the opposite of me on almost every subject.

    Comment


      #3
      Thanks JKO. No I did not, these were my first BTL properties.

      Comment


        #4
        buy the tax café book on reducing property taxes, lots of good examples in there, a lot of work you have undertaken would seem to fall into the income tax offset regime.

        Comment


          #5
          Furnished or unfurnished?

          Comment


            #6
            This is a wonderful grey area.

            If you make changes to a property that increase its value, you are improving it, which is a capital event and therefore the cost is allowable on disposal as a capital cost.

            However, some of the changes might simply be maintenance - changing a window that is in need of repair might add a much better window.
            This is inevitable as time moves on and things improve - the same cost window a decade ago would probably not have been double glazed or might have a wooden frame,
            now an "entry level" [!] window is probably UPVC and double glazed. This is a maintenance event and allowable against income.
            Fuseboxes are likely to be "replacement", but much improved
            Decorating with wallpaper replacing paint - it's an improvement and/or simply maintenance.

            You would need to consider a) which tax treatment might suit you most and b) evaluate each item to see how it should be treated (imagine having to explain why you chose the treatment to a nasty person from HMRC).
            The wording on estimates and invoices can be very influential (mostly they'll say things like replacing door, rather than upgrading door) and you might need to split invoices between categories (which is a bit of a pain).

            Some items are not allowable either way, and this is even more "grey".
            Furnishings are neither maintainable or capital - which means that laminate flooring is allowable as a "fitting", but carpet isn't.
            Again, what the invoice says will probably be key - "replacing kitchen" might be more helpful than "install fridge and dishwasher".
            If you securely bolt a normally free standing appliance to a wall, it might pass as a fitting.

            This is a matter of art not science and a good accountant can be worth their weight in tax allowance gold.
            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


              #7
              Thank you all.....

              The property is unfurnished (except I have supplied white goods)

              I've just discovered books from the tax café and just finished reading 'Using a property company to save tax,' Reducing property taxes will be next

              An idea world for me I suppose would be to allocate it all against maintenance therefore reducing tax on rental income for a while; however I guess HMRC won't see it this way!!!!

              My receipts / the way I have been invoiced.......
              I have paid for all materials directly with the builder being paid on a weekly basis (labour only). Not sure now if this is a good thing or bad?

              I have an accountant for my electrical business but I don't think he 'specialises' in property - I'll give him a call in the new year.

              Can anyone recommend a good property accountant in the South Wales area?

              Cheers all
              VC

              Comment

              Latest Activity

              Collapse

              • Reply to SDLT and first time buyers
                by DoricPixie
                How old are these children if they have yet to go to university?...
                04-07-2022, 22:50 PM
              • SDLT and first time buyers
                by mpppen
                Hello again.

                Just wondering if someone can advise.

                If I sell a BTL to my children who do not own their own property, I understand that they'll get the stamp duty relief.... two questions then.

                If they're buying the £350,000 jointly, does the relief count for...
                03-07-2022, 21:52 PM
              • Reply to SDLT and first time buyers
                by jpkeates
                If the buyers are going to rent the property while they go to university, it may meet the criteria for Stamp Duty Relief but it may not.
                It would be unusual for siblings leaving university to be able to commit to cohabit in a particular place when they graduate.

                There's obviously...
                04-07-2022, 15:14 PM
              • Reply to SDLT and first time buyers
                by AndrewDod
                Apart from anything else, if you are selling the property to the kids, you are getting cash and they have a 100% mortgage - and then they are not actually paying a mortgage on 100% of 350K you will be paying it -- it is not a classic GROB, but risks falling foul of GROB rules - so when you die, even...
                04-07-2022, 14:45 PM
              • Reply to SDLT and first time buyers
                by mpppen
                Thanks.

                Yes, the lender is happy to lend them 100% the purchase price so not gifting on our side. In essence, it's just removing it from our name into theirs as he is also our lender.

                It's unusual I appreciate but it's a private commercial lender - if that makes sense. His...
                04-07-2022, 13:55 PM
              • Reply to SDLT and first time buyers
                by AndrewDod
                A few other comments:

                Depending where you are HMRC is not going to believe "no increase in value over past two years". An estate agent assessment may not be worth much at all. If challenged and HMRC do their own assessment you may be paying tax on a 20% uplift of 350K = quite...
                04-07-2022, 13:45 PM
              • Reply to SDLT and first time buyers
                by mpppen
                Thanks both.

                The intent is for them to live there but they may want to rent it out while they go off to university. That's where I'm struggling as to whether the Stamp Duty relief applies or not.

                CGT wouldn't apply as the property hasn't increased in value significantly since...
                04-07-2022, 13:11 PM
              • Reply to SDLT and first time buyers
                by AndrewDod
                Capital gains tax?
                Who assessed market value?
                Are they actually paying for this?
                04-07-2022, 08:35 AM
              • Reply to Are letting agent fees(2 year lease,change of tenant) considered allowable expenses
                by AndrewDod
                Absolutely northing at all to do with capital expenditure
                04-07-2022, 08:31 AM
              • Are letting agent fees(2 year lease,change of tenant) considered allowable expenses
                by ss112233
                This question is about allowable expenses for tax deduction.
                Are letting agent fees for a 24 month lease(with a 16 month break clause) after a change of tenant considered as revenue or capital expenditure?
                I use a cash basis for accounting. The fees were paid in two lump sums. One at the...
                03-07-2022, 13:26 PM
              Working...
              X