Costs for preparing the house, before the tenants arrive

MarieAAP

Hi All

We are contemplating renting out our current home, and buying a bigger one. The idea of renting it out will be as a long term investment, our pension pot J There is no negative equity, and will have made a profit if it is sold, as it was bought before 2000.

The house will be mortgage free (could be paid off in 3mths), and so there will be no need to change it to a “buy to let” mortgage.

My queries are about the costs preparing the house ready for renting and tenants, and whether any of it can be claimed as "setting up" expenses for tax purposes? What is the proper term for this?

Things like:

· Some furniture, as it would be rented as furnished. Some items will be left behind like bookcases, chest of draws (which i don't expect to claim), but new items specifically for the new renters e.g. Beds, receipts can be provided as proof.
· House repairs that would not be needed to be done for selling, but definitely worth it on a long term basis e.g. damp reducing the cellar, guttering - employing a professional, invoices will be required etc.
· Buying / renting tools to do the work ourselves
· Gas and electrical certificates to prove the soundness of the house
· etc

From what I have read, once the house is tenanted, such repairs / replacements are expenses and can be offset (terminology?) of any profits, but what any costs before then? Is there a limited time before e.g. within 3 months, % of gross profit etc? As I seem to remember if starting a new business, some of these costs can be counted.

As a side note, there may be the option of moving out, and then leaving the house empty whilst the house be prepared for tenants e.g. lick of paint, repairs, purchasing equipment etc. This will make make preparing the house considerably easier if it was empty. Of course we would not want this empty too long (4-6 weeks max), as the estimated net rent would pay ½ of the new mortgage payments J

Thank you in advance for reading, and if you can provide any resources that would be fabulous.

Cheers
Marie

(PS I have found Landlord Zone a little overwhelming for someone who finding information out before they go ahead.)

G_M

May be worth keeping the mortgage as the interest element can be offset against tax. Without this you'll be paying tax on th rental income.

See this post and th links including to HMRC for tax.

MarieAAP

Thanks GM, that link looks really promising.

I have less than 1800 left to pay on the M.

When we discussed the options with the M advisor, she said, it would cost about the same as arranging through a rental estate agents as it would be to set up a "buy to let" M, plus the % rate is 4-7%, depending on the scheme. The bank was not the same house M lender. We visited my OH's bank, and the job situ he would be in 6 FTC (15-20 yr history with them), and me in a perm job, and our case would be forwarded to an independant assessor.

So on the long term for the current house would be a better financial prospect to change to a BTL, this would have a serious impact on our lending ability for our new home.

We both have good and detailed credit historys - with me paying off a M within 15 yrs! So although they would not be making massive profits, I would be a very safe bet :P

m_13

All allowable costs which are incurred before the date of the first letting are brought forward and for tax purposes take place on that date so if you have costs spread over 6 months preparing for the first tenant and the first tenancy starts on 1st April 2011 then all those costs are brought forward as though they were all spent on 1st April 2011. This may mean that you make a loss in the first year but you can carry this loss forward against future profit. There's a useful similar discussion on landlordzone here: http://www.landlordzone.co.uk/forums/showthread.php?28131-Allowable-Expenses-Prior-to-letting-amp-letting

Also bear in mind that you can use a loan secured on any property up to the value of the property you are letting on the day the business starts. So if your property is worth 100k on the day you start letting it then you can claim back the interest on a 100k loan secured on any property as though it were on your property that is let out. You need to know the value of the property when it's brought into the business though which if you were buying it would be the purchase value. Your can use a surveyor to give you a formal valuation to use.