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Are Redecoration Costs Always Tax Deductable?


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Hi. I would really appreciate some advice:

I am about to become a novice landlord as I'm moving in with my partner and plan to rent out my own house (on a longterm basis). I have lived in the house for 12 yrs and am currently redecorating and replacing some of the carpets.

Having looked at the tax advice section, I am confused as to whether I can deduct these costs prior to letting, in view of the house being my home for the past 12 yrs and not a new purchase.

Any advice gratefully received k

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I'm not a tax expert, but I believe the answer is no.

The way it works is that costs incurred bringing the property to a lettable condition before it is let, cannot be offset against the monthly income (Revenue).

The cost is viewed as capital and as such, when a property is sold, the cost can be deducted when working out capital gains tax.

However as you currently live there, you may not even be able to deduct it as capital (may not be relevant if you sell within a few years of letting anyhow) , that is a very grey area.

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I am a Chartered Tax Adviser and the answer is as Matthew says - grey.

The question you must ask is whether the property was in a lettable state prior to redecoration. If it was and you are merely making it more presentable then then would be allowable costs against your profits.

However if the property was not in a lettable state then it is likely that the costs would be improvements, however (sorry to disagree Matt) I would allow all costs of improvement - despite whether this was ever your PPR or not. An improvement is an improvement, whether this was/is your PPR or not. An improvement is an allowable deduction against the eventual sale of the property

However as Matt does say, if you sell within three years of the property not being your PPR then the improvements could be irrelevant anyway as the 'profit on sale' would be covered by PPR exemption anyway.

You really need to just take a view on this (or put it through an accountant/tax adviser if you are uncomfortable with making the decisions yourself), perhap take photographs pre-decoration etc - this could help with any claim to set against profits rather than capital), also, what sort of figures are you talking about? Small amounts could arguably just be revenue expenses. Additionally, it may be that some expenses can be classified as revenue, some as capital.

Have a look at HMRC's property income manual - http://www.hmrc.gov.uk/manuals/pimmanual/index.htm

You should also consider other mitigation, for example, look at loan interest planning to ensure you are maximising where possible. Many landlords under-mortgage their properties as they do not realise that they can (in some circumstances) increase the capital extraction on their property - for example, a mortgage interest rate of 6% for a higher rate taxpayer is just 3.6% and so some intelligent structuring could increase wealth. Additionally, if you are married it can sometimes be beneficial to look at income structuring, it is possible for example to get a 50:50 income split by giving away very little of the capital ownership of your property.

The figures which prove to be most beneficial are dependant on the individual circumstances and whilst you may not want help with for example, tax return preparation, it is sometime worth paying out for someone to review your situation for you to ensure you have the best structure in place.

I hope this helps

Kind regards

Sherena Glanton CTA

Senior Tax Consultant


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Thanks for your advice. I'd tried to find the answer on the hmrc website but only found grey answers. I think I'll opt for the deductions option as the house was in a lettable condition. In fact I used to do the rent a room thing until quite recently, but never declared it as the income was below the threshold (no excuse I know). And I'm thinking that £1.5-2K wont be ringing alarm bells with hmrc.

I am looking at interest deductions i.e. how much to remortgage my house for, so after a bit of number crunching to get some ballpark figures I'm sure some financial advice will be helpful.

Thanks once again k

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