Landlord allowable expenses and tax years

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We have just started letting out our previous home. We needed to do quite a bit of DIY (decorating, plastering, new flooring etc) to bring it up to market standard. This probably cost in the region of £2K. We have kept as many receipts as possible and were hoping these would be allowable expenses to deduct from income.
Tenants moved in just as the new tax year has started, and it has got me worrying that I won't be able to deduct expenses that were incurred in the last tax year, against income incurred in this current tax year.
However surely that can't be right?

Advice greatly appreciated. Also keen to know if it's easier just to go to an accountant to get things set up as thus is a new venture for us.

If they are allowable expenses then they would be considered precomencement expenses and would be treated as if they occurred on day 1 of your "business starting" (ie day tenants move in).

But I think you should speak to an accountant to make sure they would be considered allowable expenses and not "improvements". This might help explain it more clearly.

Thanks, that's really great advice.

As you may know, the materials are tax deductible but your labour is deemed free and is not. Same as the rental is defined as unearned income. Osbo and his mates hate landlords as much as mumsnet does. But they can all afford to pay tradesmen.

Nope, unfortunately not allowable if incurred prior to your letting business start date. These improvements were required before you were ready to market it in this capacity according to your post.

It's a very common question and any accountant will set you straight (or phone HMRC and they'll verify). Also, you can cross check stuff like this with full HMRC tax law available online.

Now is not a good time to accidentally flex tax law as a BTL landlord. It is complicated so worth double checking everything if this will be your 1st BTL tax return.

For next time, do your repairs between tenancies, keeping property on the market continuously. You can then deduct everything! Good luck

Hmm some things were necessary to get up to standard (some replastering, painting, new bathroom etc), some were just for rental (electrical safety check and electrical repairs, gas safe certificate, some other safety bits and pieces). Am confused re conflicting advice. * I googled precommencement expenses after the post above, and it seems to be true

HMRC are the governing body you answer to for tax purposes. They have an information line and all tax law is published online. You are 100% responsible for complying with tax law.

Quoting HMRC directly from PIM2505 regarding precommencement expenses:

"to be allowable, the expenditure must be incurred wholly and exclusively for the purposes of the rental business and must not be capital expenditure etc"

You say this house was your previous home, then you did it up via floorboards and plastering etc. before it became a lettings business. There's no way I see you can possibly argue compliance of those particular with the above guidelines.

But my opinion doesn't matter.

As previously suggested, I would strongly suggest you contact HMRC for clarification. If you are investigated, and I mean this nicely, google is not an acceptable defense for filing a return fraudulently and you could get into a lot trouble.

I think you need an accountant.

Things like safety certificates will be allowable.

Things like a new bathroom may be regarded as an improvement and 'capital' expenditure.

If you end up being liable for capital gains tax, that's when you can deduct the cost of improvements.

HMRC will answer questions, but tax isn't always clear cut. They won't have your exact details in front of them when they answer and there may be room for error, particularly if you are already confused.

I'm a btl landlord. The rules are a bit of an ambiguous area and up til now, I have done a mixture of both - I used an accountant to do this. It doesn't look like there would be any benefit in making these expenses as capital allowances as the current tax law stand and this is very unlikely to change in a way, that would affect you. Expenses of £2k incurred to get a property in a lettable state really are peanuts and just need to be listed on your tax return. The bathroom does not need to be treated as capital expenditure as a pp stated. You are updating an existing bathroom. You would actually need to argue that you were seriously updating the bathroom to have it treated as a capital expense if there was one already in existence. I've had btls since 1998.

Posted too soon. We deducted stuff like decoration and new carpets with a property we lived in. We basically moved out and got the property into a lettable state for business purposes. Lots of people live in a less than ideal house for letting. If you did this a year ago for your own benefit, that would be different. I would contact hmrc and ask if they want you to file an accrued loss for this tax year. If you do that, you will want to see if you can accrue any loss on mortgage interest payments at the same time. Now that one is a sticky area because you should only deduct them when the property is available for rent. If you are looking at doing your own returns, you will have to look into all the rules. I would have a no obligation meeting with a tax accountant tbh especially if you are a higher tax earner in case they have any advice to help reduce your future tax burden on this one. You can then decide if it is worth employing them to do your return or not.

I agree that work on a bathroom might be regarded as 'repair and renewal' depending on what was there before. However, bringing something into a useable condition is specifically capital expenditure.

That is why you need an accountant to advise you on your situation.

HMRC don't check all tax returns and are not all seeing, so the fact that they have not noticed something on somebody's tax return does not mean that the return was completed correctly.

The best person to ask for advice is an accountant who can give you the correct advice for your situation.

Yes merrymouse I know what you are saying. After letting a house for many years, we changed the bathroom and treated it as capital expenditure because that suited us as we decided to sell it 6 months later. We also changed the windows and as they were from single to double glazing we could treat them as either capital expenditure or annual deduction. On the house we sold, we also treated the house as capital expenditure. On other houses we didn't sell, we put the bathrooms and windows on the annual tax deduction. You can do EITHER. I used a very reputable accountant for all of this, who advised us on the rules and we compiled. The only thing you cannot put on as capital expenditure is stuff such as like for like double glazed windows and carpets.

*not the house as capital expenditure. The WINDOWS.

No, you definitely can't do either. Depending on the facts of the case expenditure will either be revenue or capital.

There are many court cases arguing whether a particular item of expenditure is capital or revenue. The number of court cases shows that the decision isn't always clear cut and that HMRC's initial decision is often judged to be wrong, but that eventually there will be a right or wrong answer.

You can decide whether or not to use capital allowances, but that is a whole other kettle of fish.

See an accountant.

janecc, in the situations you describe you may have treated each item correctly and an accountant will probably argue the case that will result in the better tax situation for the client if the revenue/capital answer isn't clear cut.

However, that doesn't mean HMRC won't take you to court if they think you are wrong - on the other hand the courts might think HMRC is wrong.