Letting out my home - Tax deductible expenses ?

[sat]

I am having to let out my own home. Before I could do that, I am undertaking some expenses and want to understand how much of those could be set off against the rental income and whether in the same financial year.

I am a high rate tax payer and the house is expected to be let out starting early december, so I may have around 4 months of rental income to be added to my salary income.

The expense list may look like this -

Mortgage arrangement fee for BTL mortgage - £1995
Replacing old timber windows with new UPVC windows - £2800 VAT receipt
Heating repairs - £400 - No Receipts ( cash paid out for both parts and service charges ).
Drainage cleaning - £70 [ cash paid, no receipt ]
Decorating expenses - £600 - No Receipts( cash paid out - including material and service charges )
Initial Letting Agent expenses - Yet to realize.
Ongoing Letting agent expenses - 10% of the rental income
Ongoing Mortgage Interest
Ongoing Landlord Insurances

Also, do I need to produce the BILLS while filing the returns or just need to claim and preserve the receipts for certain number of years.

Sat

[jpkeates]

All of those are legitimate operating costs allowable against income (the mechanism for interest rate allowance is probably changing from next April).
The refurb costs are claimed as though incurred on the first day you rent the property.

The windows are possibly capital expenses as improvements, but can probably be claimed either way, as it's hard to replace something without improving it.

You need to be able to prove the expenses to the satisfaction of whoever prepares your tax return, and may need to be able to prove them if HMRC challenge them.
Some people don't claim without receipts, I believe a small number of cash purchases are reasonable, if difficult to prove - not that I've ever been investigates with any degree of rigour.
Paying £600 in cash for decorating is not a good idea, particularly if the decorator is registered for VAT.

HMRC have 6 years to challenge your returns.

[Mrs Mug]

Isn't the point of paying tradesmen in cash, with no receipt, is to get a lower price?

Therefore, the consequence of that is that you won't be able to claim it on your tax return.

[DPT57]

The refurb costs are claimed as though incurred on the first day you rent the property.

I was told by HMRC that you could only claim for expenses incurred in advance of letting if this isn't the only property you let and in effect you already have an established letting business. Do you think that this is incorrect?

[jpkeates]

That's not correct.

When you rent the property for the first time, the expenses become allowable and are taken into the business at that point.

[DPT57]

Interesting.... thanks. Mind you I shouldn't be surprised really, an HMRC 'specialist' once told me that I should claim the purchase cost of all the furniture in my rental flat as well as the wear and tear allowance!

Could you point me to any HMRC guidance that backs up your point JPK?

Thanks

[jpkeates]

http://www.hmrc.gov.uk/manuals/pimmanual/pim2505.htm

[sat]

Am I right in assuming that the mortgage arrangement fee can claimed in full in this year itself ? So, a rental income of 4320£ can be fully offset by the mortgage arrangement fee of 1995£ and monthly interest payments of 2300£ + any other expenses, I could legitimately claim ?

[jpkeates]

Strictly speaking the mortgage arrangement fee should be spread over the term of the mortgage,
I've never had an issue with taking the full cost in the first year - but that's not "correct".

If you are going to make a trading loss in the first year, you might want to record the loss for future tax allowance.

You may find it useful to pay an accountant to do your tax return (another allowable expense).
I do.

[catdog1121]

sat,

Mortgage arrangement fee yes im with jp on when to claim

Windows - yes

Heating repairs - questionable, if it was broken before the commencement of any rental buisness then no, you can claim for the windows because thats sort of like wear and tear, it would not be fair to say no to it as someone could rent it out for 6 months then change them. Also you would need a receipt or at least proof of payment or hmrc would not accept if your investigated and you could be fined..

Drainage cleaning - yes as long as it was preventative if it was blocked the above applies. But again no if you dont have a receipt or at least proof of payment.

Decorating expences - yes but again need receipt or proof of payment

Letting agent - yes both initial and ongoing

Mortgage interest - yes for now but new rules in 2017 will limit it to 20% by 2021

Landlord insurance - yes


I think you were a little silly paying in cash and not getting receipts, that practice is for between private individuals and companies (usually small)... btl is a buisness so its a buisness to buisness transaction so offsetting against tax will always be better than the bit of discount you get from cash... I would say dont risk it unless you can get receipts from them and put those down as an expensive mistake.... My advice keep above board hmrc and the government are after landlords...