Deferring Expenses on Taxable Rent Income?

flugelhorn_2

Hi,

I recently rented out my old property and within 3 months the boiler which served us quite nicely for a number of years ceased to perform. As this was quite an old system we were forced to fork out for the switch to a combi. I don't mind doing this as this should now work quite well for a number of years, so is in fact an investment in itself.

My question is..... do I have to allocate this expense during this tax year? I have incurred a number of costs to get the house up to scratch and to sort out some other teething problems which pretty much cancel out any tax I would pay this year already. Can the new central heating expense be deferred until next year or over a number of years as it is being used? Someone mentioned that there is a difference between improvements and repairs?

chrismac1

Firstly central heating installation is specifically allowable against the rental income as a tax-deductible expense. The good news is that the timing of the boiler repairs will make no difference to the tax bills you pay, so no need to "fiddle" the date. To see why, let's suppose you had rental income of £5k and setting up and other claimable expenses of £5k, and next tax year is a good one and you get £20k of rent and just £8k of expenses because you set things up so well when you started.

The new boiler costs £3k.

This tax year, you report £5k of income and 5+3 = 8k of expenses. This gives you a loss to carry forward of £3k.

Next year, you report the £20k less the £8k, LESS the £3k of losses carried forward. So you have a taxable profit of £9k.

"I have incurred a number of costs to get the house up to scratch."

Be careful if any of these expenses have involved changes to the fabric of the building, as opposed to the internals of the building. Improvements cannot be claimed against the rental income - you must note them and claim them against any eventual gain on the final sale of the building, thus potentially paying less Capital Gains Tax on that sale. If the expenses were a genuine replacement or renewal of old kit such as the boiler, you can claim them. If you get a tax enquiry or visit (3% of self-assessment folk per year get one) you can be sure this is an area that will get looked at.