tax on rental property

myshell

Hello - I am new to this forum -please could someone advise - I purchased a property for rental, but first had to renovate the property, by fitting new windows, central heating, kitchen, decorating etc - Can you advise if this expenditure is classed as capital? In the same year I let the property out so therefore have some income to declare, can you confirm that any work carried out after rental started is classed as repairs. If i am on the right track - how / what do I do with the capital items.

Thankyou very much

James_Trimby

HI you are on the right track BUT still a bit further to travel!

The capital expenditure stick in a file/keep totals to build up a cost of the building for when you eventually sell it. There is really no questions regarding expenses before first rent.

Afterwards you need to make a decision on each expenditure was it putting things to same position as when you purchased property or were you improving it? The former is allowed against rental income the latter goes in the capital gains file. The principle that you have already spotted is that once renting, and the longer from original purchase, the easier to justify as a repair rather than capital. For instance it would look stupid to have a large repair bill in your first period of account and it is likely to get starred up on the revenue system but as time goes on they will expect to see a % of rental income spent on repairs. If borrowing to do some of this work the interest is okay as long as easily connected with the works (ie not a general credit card/overdraft etc) but agin only from first rental.
Best practice is to rent first (at a lower income due to condition?) and improve slowly so making the question of capital v revuenue that much harder for the Revenue to argue. In practise I know this is not always posssible of commerially sensible.
Hope this helps

myshell

Thankyou kindly - can I just re-cap - Basically all expenditure before rental goes in capital expenditure file.

Then once rental started - look at expenses and see if expense or capital.

Do I just sit on the capital expenditure file until the property is sold?

Thanks - best get cracking

James_Trimby

Spot on Revenue only interested when you sell or dispose of in some way. This file is often ignored / lost /not kept but with present rules and assuming you do make a profit every invoice in the file is worth an eventual 18% to you SO dont lose it!