When do I register for Self Ass.Tax

[Questor]

Hi Guys

I am a complete newby so go easy on me :-)

I normally pay Income Tax through PAYE and I am just about to let a property that I have been renovating for the last year. I have tenants ready to move in in April. I have received no income during the last year but I do have considerable expenses that I want to claim for.

Do I need to register now and declare no income and register the loss or should I wait until next year when I will have income to declare?

I tried phoning HMRC. I was told I could leave it till next year but the chap I got didn't fill me with confidence.

[Richlist]

I have tenants ready to move in in April.

If thats on or after April 6th it will fall within the 2014 - 2015 tax year. Request the 'Land & Property' self assessment pages from HMRC after April 6th.

I have received no income during the last year but I do have considerable expenses that I want to claim for.

You may be under the misapprehension that you will be able to offset these expenses against income tax.....that is NOT likely to be the case. Your expenses are likely to be capital expenses & not revenue so you will only be able to offset them against CGT on sale of the property. If you list out the main expense headings I should be able to confirm wether they are revenue or capital.

[Questor]

Hi Richlist

The tenants move in on April 1st

The main bills are for:

Repairs to central heating, incl. new boiler

Electrical work to bring it up to standard for letting

Repairs to walls (plastering)

Replace worn bathroom fittings (Parts only)

Replace worn kitchen units (Parts only)

Replace damaged garden fence (Parts only)

Painting and decorating (Parts only)

Replace worn carpets

Council Tax

Water rates

Electric & Gas

What do you think?

[Richlist]

Imagine there are two identical properties :

1. In OK condition sells for £100K

2. In need of serious renovation work sells for £70K & buyer then spends £20K renovating the property.

The expenditure for both is treated the same.....both are capital expenses and offset against capital gains on disposal.

Note:

* Expenditure that might normally be regarded as revenuue eg painting & decorating are treated as capital when the work forms a small part of a larger capital project.....as in your case.

* Any work that has an element of improvement is also treated as capital.

Repairs to central heating, incl. new boiler

Electrical work to bring it up to standard for letting

Repairs to walls (plastering)

Replace worn bathroom fittings (Parts only)

Replace worn kitchen units (Parts only)

Replace damaged garden fence (Parts only)

Painting and decorating (Parts only)

Replace worn carpets

Carpets would not be an item you could normally claim for separately in any event.

The rest I'd consider to be capital expense.

You might want to get an accountant involved for the first year.

[Chestnut]

Questor, I suggest you look up Self Assessment and section on Property Income Tax on HMRC website.

The HMRC chap you spoke to on phone was right in that you don't need to submit Self Assessment Property Income Tax until next year as he concluded you won't have had much if any rental income in the current year ending shortly April 5th if your tenancy only starts in April. Next April 2015 you will need to fill in S A Property Income and can offset specifed expenses that occur during the tenancy (e.g. insurance, annual gas checks etc.) against the income you made from rents.

Expenditure you refer to prior to your first letting are treated as capital improvements that, as RL explains, you may be able to offset against any Capital Gains Tax when you eventually sell the property. It's worth keeping a list of expenses for this reason.

I'm not an expert - if in doubt it's best to seek professional advice.

[Questor]

Expenditure you refer to prior to your first letting are treated as capital improvements

I think I need to get some advice on this as I was under the impression that I could claim for some of the repairs.

Here is an extract from "PIM2505 Beginning and end of a Rental Business"

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:

• is incurred within a period of seven years before the date the rental business is started, and
• is not otherwise allowable as a deduction for tax purposes, and
• would have been allowed as a deduction if it had been incurred after the rental business started.

[Richlist]

I don't believe your pre letting expenses qualify for income tax relief for the reasons I've outlined.

If you disagree I suggest you get professional advice. I fail to see why you have asked the question in the first place if as it seems :

1. You are going to disagree when the answer differs to the one you want &

2. You have already interpreted PIM 2505 to suit your needs.

An accountant will sort this out for you but please note ......

1. They get it wrong sometimes.

2. IMHO it really doesn't matter very much provided you get to claim the expenses only once.

There is an arguement that says if you are a 20% tax payer its probably more cost effective to claim the expenses as capital (at 28%) than revenue (at 20%).

[Chestnut]

Questor: Thanks for drawing my attention to PIM2505. Having not been aware of this doc before I realise I am even less of an expert than I thought.

Hence I would recommend professional advice if you wish to explore this area of HMRC jungle.