Can future expenses be offset in current tax year?

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    Can future expenses be offset in current tax year?

    Please does anyone know if expenses which are known to be due to be incurred in the following tax year, e.g. repairs or replacements when a tenant leaves, can be offset against rental profits in the current tax year? Thank you.

    The answer is No.


      If you have filled in a tax return and signed it, you would realise that you are having to declare the rental income and allowable expenses for the 12 months period ending 5th April 2015 ( or any previous year ). If you enter expenses which have not yet been incurred duringthe12 months reporting period , you are making a fraudulent tax return.


        Rental business accounts should be prepared in accordance with generally accepted accounting principles and therefore you could potentially make a provision for such expenditure but for it to be allowable by HMRC it would need to meet all 3 of the following criteria -

        1. There is a legal or constructive obligation (before the obligation can exist there must have been an obligating event);
        2. An outflow of economic benefits will be required to discharge the obligation; and
        3. The amount of the obligation can be measured reliably.

        Where some or all of the expenditure is likely to be reimbursed by another party, e.g. insurance, then that should be taken into account as well.


          Contradictory replies.

          Thank you for your replies. However, the last reply seem to contradict previous ones. Clearly, there is uncertainty.


            You asked a specific question relating to repairs, replacements etc... The answers given in posts two and three are applicable to your question.

            What type of replacements and repairs are you referring to?


              Originally posted by autolychus View Post
              Thank you for your replies. However, this last reply seem to contradict previous ones. Clearly, there is uncertainty.
              Not really.
              Proposed repairs or replacements would fail criterion 1 (as you don't have to make the repairs or replace anything) and 3 (unless you know how much they will be exactly).
              If you plan (or hope) to charge the costs to a deposit or the tenant or an insurer they would fail criterion 2.

              So, in theory, if you have (say) a wall that's become unsafe and a local authority notice to repair/replace it so you can't not do it, you know pretty much exactly how much it will cost and you don't plan on recharging it to anyone, you could create a provision and include it in your figures ahead of incurring the actual cost.
              In reality, that is so unlikely as to make the answer unhelpful!

              Generally speaking, a provision, other than the occasional bit of bad debt, would be unusual in a property investment tax return.
              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).


                HMRC manual PIM2020 states:
                'A taxpayer can deduct expenditure on repairs where the liability to pay for the work is incurred during the tax year but payment has not been made by 5 April.'

                I am thinking of a situation where liability was incurred for a major repair ( replacement of an unusable back door )- which the landlord would have effected and paid for, had he been made aware of it by the then tenant. Unfortunately, the repair did not come to light until a new tenant took possession, in the following tax year. I.e., this is not a case of a deferred repair.


                  So no expenditure was incurred, so no provision can be made.


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