which expenses can I offset against rental income?

Doglover

Hi, please would someone let me know if I can offset the cost of redecoration against rental income for tax purposes?

This was the first time letting the property so it was redecorated prior to the tenants moving in.

There are also additional costs incurred after they moved in, including fence panels that needed replacing and a boiler repair.

I know I can claim the boiler repair but wondered if any of the expenses are legit for claiming. I really don't want to put the wrong expense down on my first tax return!

I will be offsetting the cost of the interest part of my mortgage and the cost of ground rent and building insurance.

Thanks for your advice in advance.

awara

Hello
it might help if you explain What was included in "redecoration"?

for the meanwhile have a look here.



Allowable expenses

The expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:

• letting agent's fees
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
• accountant's fees
• buildings and contents insurance
• interest on property loans
• maintenance and repairs to the property (but not improvements)
• utility bills (like gas, water, electricity)
• rent, ground rent, service charges
• Council Tax
• services you pay for, like cleaning or gardening
• other direct costs of letting the property, like phone calls, stationery, advertising

If your annual income from the letting for the tax year 2010-11 is less than £70,000 (before you've taken off expenses) you include the total expenses on your tax return; if it's £70,000 or over you need to provide a breakdown.
Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it.

Non-allowable expenses

When you work out your profit, you can't deduct:

• 'capital' costs, like furniture or the property itself
• personal expenses - costs that aren't to do with your letting business
• any loss you make when you sell the property

But you may be able to claim some allowances instead.


http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027

Pennywise

Redecoration between is usually allowable, but you may have a problem with the timing if you've done it before the first tenants have moved in, i.e. if you've just bought it or if you've previously lived in it, in which case, a tax inspector could argue that the costs aren't a valid expense as they were incurred prior to letting rather than as a result of letting.

chrismac1

10% wear and tear allowance is the normal form for a buy to let, capital allowances only on a furnished holiday let.

Redecoration is almost always allowable in my view. Two main questions:

1. Is it definitely not capital?
2. Is it wholly and exclusively for the business?

Normally it is easy to answer yes to these. Firstly, a lick of paint and new paper does not increase the value of most properties, it's not like putting on a conservatory for example. So it is not capital. Landlords normally decorate to enhance the image of the property to tenants and hence secure either higher rents or longer lets, clearly this is a business purpose. If challenged, my starting point is "OK you disallow the cost of the paint and the paper, and I'll take out the rental income because without the former you'd not have any of the latter!"

Doglover

Hi thanks for your replies.

I did live in the property before and chose to freshen it up by painting it prior to letting it. I've done lots of research and it's just the cost of this "freshening up redecoration" that I'm not sure is allowable.

SomersetSaver

It's a tricky one. You're allowed to claim for expenses that prevent the property from deteriorating, but not for anything which improves the property. I think it's hard to claim any costs that you incurred before you rented the house out as that's getting the property ready as a business, in effect, which I don't think they'd allow. Might be worth a call to the HMRC as their guidance notes don't really make it clear. I had a similar query when I first rented out a house and believe they told me they weren't allowable. However, their rules / views may have changed since then so it's best to check with them. The fence/boiler costs would be allowable as they've been incurred after the tenant has moved in and are repairs.

chrismac1

Phoning HMRC is a really bad idea. Firstly, most of the people on the phone lines haven't got a clue about most of the basic rules. Secondly, what we have here is a "grey area" so even if they do have a clue they are going to tell you it is not allowable. This is in my view a no brainer unless the redecoration was substantial enough to amount to a genuine capital improvement - you claim it and if you are selected as one of the 3% of self-assessment taxpayers who is inspected and then if you are asked about these costs (50-50 shot in my view) you bring out the arguments we've raised here and see what happens.

So I make that a 1.5% chance you're going to have to argue your corner and even then you might win. Hence a no-brainer.