Storage costs allowable re rented property?

fbrj

Has anyone experience of this?
Our taxman is refusing to accept that storage costs incurred on a rented property (owned by us) are allowable. Our house was being rented out when my job took me overseas.
The situation was that the property was available to let either furnished or unfurnished. In the event, the tenants elected to bring their own furniture and we therefore had to store what was not required by the tenants. It is those storage costs that we are being told are not allowable - I fail to see why!
Has anyone come across this before - and, if so, what was the outcome?

roger_c

Why don't you you ask them the reasoning behind this decision. They have to provide a reason for disallowing the cost. I can't make up my mind whether it is allowable or not. A quick call to the HMRC would clarify things.

I had a look at the HMRC land and property notes pages, and it does state that in general allowable costs are those which "you incur for the sole purpose of earning business profits".

http://www.hmrc.gov.uk/pdfs/1996_97/landprp.pdf

fbrj

roger_c wrote:

Why don't you you ask them the reasoning behind this decision. They have to provide a reason for disallowing the cost. I can't make up my mind whether it is allowable or not. A quick call to the HMRC would clarify things.

I had a look at the HMRC land and property notes pages, and it does state that in general allowable costs are those which "you incur for the sole purpose of earning business profits".

http://www.hmrc.gov.uk/pdfs/1996_97/landprp.pdf

Thanks for your input. I too have looked at the land and property notes and am assembling the arguments. The taxman is refusing on the basis that they were "personal effects" - although I have already argued that all our personal effects were either with us in the UK (at a relative's house we were using as a UK base) or with us overseas. All storage items were those that we would have left in the house, had the tenant wanted a let on a fully furnished basis.

I was also refused on the basis that these costs were a consequence (their emphasis) of the letting. This strikes me as a rather odd argument as the riposte surely is that other expenses, which are allowable, are also as a consequence of a letting - eg agents fees!

I have also spoken to the IR helpline ..was referred to a "technician" who subsequently called me back to say he couldn't find anything in "the Manual" and the best he could suggest was that I should call an Inspector at my tax office - this would mean going over the head of my "Officer" though. I raised the question here...just in case someone else had come across this before I do that.

Cook_County

Storage of effects is specifically deductible for US tax purposes.

Where were you working abroad? Did you have to pay tax in that country and if so does it mattter how much UK tax you have to pay if it is creditable against the tax in that country?

Other points:

1. If the property had been let furnished you would have had greater expenses because the tenant would have cost you money in repairing furnishings, making sure they met fire safety regulations etc.
2. Because it was unfurnished you have had to pay tax on 100% of the rent as against 90% if it was furnished. This seems unfair...
3. The expenses are deductible if they were a condition of the letting, no more or less than expenses such as gas safety certificates. If the tenant insisted then you are correct. The letting agent can probably confirm this in writing.
4. Have you claimed all other expenses such as insurance, mortgage admin fees, legal fees for tenancy agreement, council tax for vacant periods, capital allowances on computer, cost of inspection trips etc?

This is not a serious investigation in HMRCs eyes so you can afford to play hardball with them...

roger_c

Cook_County wrote:

Have you claimed all other expenses such as insurance, mortgage admin fees, legal fees for tenancy agreement, council tax for vacant periods, capital allowances on computer, cost of inspection trips etc?

The above point is a very good one, I think some people are unaware that you can claim these expenses. Cost of inspection trips (i.e. travel expenses to and from the property) is one that I assume alot of people will miss out.

I guess if you have read the help pages you will have picked most of this up though.

grumpyoldgit_2

As someone who regularly challenges ANY bureaucracy I think you should lodge an appeal - HMRC are always banging on about customers and fairness in their so called charter - this seems to me to be inherently unfair.
I liked your poiint about consequences - use that against them.
I have always found (with HMRC) that reason prevails it looks to me as though some deskbound case officer has made a decision that does not treat you fairly - you are entitled to challenge that and i say you should do so - all the way through their process.
I think you will win as your argument is "reasonable" and that will be the final test if you go to the Ombudsman.
HMRC are very cost conscious and I doubt they will want to get into a protracted case for a relatively small amount - that gives you an advantage BUT it will mean taking on the system and that can be costly in many different ways!
Good Luck - please keep us posted as this is an interesting and worthwhile case.
GoG

sarahlouise210

I personally would have considered that the storage costs were not allowable. It is not an essential cost of the letting that the furniture be placed in storage - the tenant has asked that the property be available unfurnished and you have accomodated their request, however why should you then expect to claim the expense of the storage for their unwanted items?? If you had not wanted the items you could have disposed of them - if you did want them to return to then they are personal effects. If you wanted to keep them for a future letting then that does not relate to the current let. You specify other expenses that are a consequence of the letting such as agents fees - you pay agents fees during you letting period - storing your own furniture that your tenant does not want enables you to be in a postion to let the property in the taste to the tenant-it is not a necessesity it is personal choice. As you will know storage is not cheap-is it really worth it,if it furniture you do not wish to keep for personal use? If this continues to be disallowed you could consider asking your employer to pay the storage costs as they were incurred as a result of you being sent to work overseas.

fbrj

sarahlouise210

Thanks for putting forward the reasons why you think that these storage costs should be disallowed. To my mind, the starting point is to see whether these expenses should be allowable or not within the "rules" and if they fall within the requirements of being an allowable expense (or not being a non-allowable expense). As far as I can determine these are as follows (no particular order):

In general any costs incurrred for the sole purpose of earning business profits; and "wholly and exclusive" expenses.

My point here is that, in these particular circumstances, I would not have obtained the letting (ie earning business profits) to this particular tenant unless I had the "storage" items removed (and put into store). In other words the "sole purpose" of incurring these costs was to obtain the letting and were directly related to this particular let. You say that the storage costs were not an essential cost of the letting - but other than either thowing all our furniture away or selling it for a nominal sum - what other option did I have? The fact of the matter was that the rental would not have been obtained unless I incurrred the expense of removing and storing the furniture (or throwing it all away). As you say, apart from wanting the furniture available on our return - it would be needed for a future tenant who wanted a furnished let (and on which I would be able to claim a 10% (of the rent) wear and tear allowance - now that is certainly a pretty arbitrary calculation!....what is the correlation between income and wear and tear??).

You raise an interesting point about personal effects - and you may well be correct if personal effects include every single item we own.....rather like what would be called "contents" in terms of a household insurance policy. I had rather, perhaps erroneously, assumed that personal effects were just that - all the items one would not leave behind for the use of a tenant! I hadn't really thought of personal effects as being large items of dining room furniture, for example. You might be interested to do a "google definition" - you will find most (but not all) show personal effects to be closer to what I thought they are - eg "personal belongings (such as clothing, pictures.. mementos)". But even if they are all deemed to be personal effects - so what? Isn't it the case that I have, in effect, lent them to the letting business for the duration of the business.

I think the crux of the matter is essentially whether the storage costs are a personal or business expense (and just because they might be deemed to be personal effects doesn't necessarily mean they cannot be a business expense).

Apart from being an allowable expense I would also have to demonstrate that the storage costs did not fall within the definitions of a non-allowable expense - which are: personal expenses, capital costs and any losses on sale. The only relevant one here is the first one - and I think you would argue that the storage costs were a "personal" expense? I would argue that they were specific expenses incurrred related to a specific let. As a matter of interest, on our return to the UK we brought back a number of items which I would call "personal effects" and which did go into seperate storage. The cost of this storage has not been claimed as - and I would agree with you here - it was totally unrelated to the let. I would have thought this demonstrated a distinct difference between the different items stored (ie those related to the let and those that were not) - although I don't think you would draw such a distiction?

I can't really see the difference between my circumstances and say a full time letting business. Supposing I owned a number of rental properties, as a business, and I stored furniture for those properties and that furniture moved back and forth depending on whether a particular tenant wanted a furnished or unfurnished let - wouldn't the cost of that storage be an allowable expense of the business? Isn't it similar to a business having a stores/spares department - would the cost of that be disallowed?

Anyway - thanks again for your input/comments....certainly food for thought...:)

fbrj

roger_c wrote:

The above point is a very good one, I think some people are unaware that you can claim these expenses. Cost of inspection trips (i.e. travel expenses to and from the property) is one that I assume alot of people will miss out.

I guess if you have read the help pages you will have picked most of this up though.

Yep all picked up..although no costs of inspection trips to be claimed - as there weren't any!

WHA

My opinion (and experience) is that if the property had previously been rented out as furnished to other tenants, then was rented out unfurnished, the costs of storage would indeed be allowable, solely because the contents had previously been part of the property rental "business" and may well be so again for the next tenant.

In your case, I am assuming that you personally lived in the property and "enjoyed" the use of the contents upto the time you vacated it, emptied it and let it. In this case, I can't see why the removal and storage of your contents is anything at all to do with the lettings "business" and it is personal costs - I would have thought that your employer would cover the costs of such things as part of their relocation package. Perhaps you should be arguing the point with your employer rather than the tax man.

There is a glimmer of hope though. I think you have two potential successful challenges. Firstly, presumably you can "prove" that you attempted to rent it out as furnished - have you copies of your advertisements showing it to be either offered furnished or unfurnished or can your lettings agent confirm that your instructions to them were for it to be let either way? Secondly, presumably this all happened a year or two ago for the Inspector to be challenging it - in which case, have you rented it out again to another tenant furnished, or is this a likely scenario in the near future? In either case, if you could produce proper evidence as to your intentions or evidence as to actual facts, you have a much stronger case.

At the end of the day, though, the contents were your personal property before the tenant moved in, no-one knows whether the contents will ever be used in a furnished let, and no-one knows at this stage if you will start to use them again yourself. I don't think the Inspector is being unreasonable at all - negotiate with your employer instead - far more likely to be successful.

geo555

Here is a simple guide of what you can claim against tax when renting a house.

http://www.yourmortgage.co.uk/03_btl/btl3.htm