Allowable expenses pre letting a property

[susan lewis]

Hi, can anyone advise me please, im going around in circles! I inherited my dads house when he passed away, i have spent about £10,000 to bring it up to a rentable standard. I have replaced the single glazing with upvc double glazing, as the windows were almost falling out! New combi central heating to replace very old leaking back boiler and leaking rads. New kitchen and bathroom. New flat roof and insulation on kithcen and bathroom. Repairs to chimney, roof, fasias, soffits and guttering. Re plastering, painting interior and exterior.
I am about to complete my first tax return and am not sure if i can claim back for any of the above, as work was done prior to my tenant moving in. Any advice would be appreciated, thanks

[Richlist]

This question comes up quite often.

First of all you need to establish the market value when you acquired/ inherited the property. You will need this for when you eventually dispose of the property and need to calculate any capital gains tax.

Looking at your list I would say all of it is capital expenditure and can only be used to reduce your capital gains tax liability when the property is sold. You cannot offset any costs against income tax liability arising from future rental income.

If you had limited the work to redecorating and let the property for a year before having repairs carried out then the cost of some of the work could have been used to reduce your income tax bill.

[susan lewis]

Thank you so much for your advice, i thought this may be the case. I could not rent the house out as it stood, the condition was poor to say the least! Do you think i would be able to use the cost of redecorating materials, for interior and exterior to reduce tax?

[Richlist]

Ordinarily the answer would be yes BUT your redecorating has followed major interior and exterior building work.....bathroom, kitchen, heating, plastering, facia, roofing etc. The tax rules say that if the decorating has been done as part of other capital works then it all comes under capital expenditure.

[Melboy]

Hi Susan...........Just to back up Richlist's comments. Most of the work carried out by you is capital expenditure and can only be claimed for when the property has been sold again.

 However you may be able to claim for upvc windows and maybe boiler under the Landlord's energy scheme tax allowance however I have a feeling the property has to have a tenant in place.

Always worth talking to the tax office HMRC and see what they have to say and see if they agree with what we say..

[susan lewis]

Many thanks to you both for your advice, i will check with HMRC about the windows and boiler. I wish i had this information before i spent so much on the property before it was rented out, but good advice for the future.

 

 

[Richlist]

Windows........if these were rotten. almost falling out and difficult/ impossible to open/close then replacing them is an improvement. I doubt that with windows in that condition it would have been possible to let the property or even legal in the event of an emergency. Therefore, by default, the new windows were a necessary requirement for the property to meet required standards and the cost forms part of the original value at inheritance.

Boiler/Central Heating.........if the boiler was not working properly, would have failed a gas safety requirement, had leaking radiators and the system required serious update or improvement before letting then the cost to bring the property up to a standard for letting is a capital expense. Just like the Windows, the cost of the heating improvements form part of the property value at inheritance and are a capital expense.

Although this may seem harsh you will appreciate the reduction in your capital gains tax bill on disposal. CGT tax rates are 18% or 28% depending on your tax position. Make sure you keep all the bills, receipts, invoices and any other supporting documents as you may need to produce them some years in the future when you dispose of the property.

Good luck.

[susan lewis]

Thanks for your comments - this was my dads house and i plan on keeping it to form part of my sons inheritance, just have to make sure receipts are kept so my boys will benefit in the long run.

[Richlist]

The best laid plans can often change along with circumstances over long periods of time. CGT is usually payable on disposal and that includes gifting a property to family members so it seems you have things well in hand.

[Melboy]

Gifting the property under the 7 year rule will exempt you from Inheritance  tax rules.........at the moment.  I think this rule will change in the future.

 If your Son lives in the property for a minimum of 3 years CGT will not apply on resale.

Downside is that your Son will own the property and could dispose of the property if he wanted to without your consent.

[Melboy]

I have had to have new fencing to one of my properties on both sides of the garden as the fence posts were rotten and panels were breaking up. They have been in place for 15 years so no complaints from me at all.

Is this a tax deductable expense? ..........or does it come under Capital expenses on selling the property?

Also the removal of a tall laurel hedge which was showing signs of a disease and I was informed that it should be taken down. Tax deductable expense again or not?

[Richlist]

Both the fence replacement and the laurel hedge removal sound like essential maintenance to me. There doesn't appear to be any suggestion of improvement therefore the cost can be used to reduce your income tax liability.

[Melboy]

Thanks RL.......That is what I was thinking as well.  Not cheap these days to have fencing replaced and even worse when it comes to having a short run of Laurel trees removed.