A couple of questions on tax return - allowable expenses on rental property

WalletFullOfMoths

Hi

I can't find the answer on here anywhere so thought I'd ask you all for your advice (having failed to get through to the HMRC help line).

I am completing my self assessment form for 2011-2012, during which time I rented out a property. Can you advise on a couple of questions I have?

1. Management company fees. I pay £x a month to the flat management company for repairs which goes into a sinking fund. Which category does this expense come under on the self assessment form; "Rents, rates, insurance, ground rents etc", "Property repairs, maintenance and renewals" or "Legal, management and professional fees"?

2. I have read it is possible to claim pre-letting repairs (assuming they are revenue and not capital). Is this the case? I repaired half the windows to the property prior to letting the property (but in the tax year prior to letting the property). Also a boiler service prior to letting, again in the previous tax year. Can I claim these as expenses?

Many thanks in advance for your help!

somethingcorporate

For question number 1 I would go for "Property repairs, maintenance and renewals" although it really does not matter a huge amount as it makes no difference to the calculations.

WalletFullOfMoths

Thanks for the fast reply! Good to know it doesn't alter the calculation, I won't get too hung up on it.

jimmo

For question 2 You can certainly claim pre-letting expenditure.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM2505.htm

The only question then is whether repairing half the windows in a property represents capital or revenue expenditure.

HMRC’s view is that if you bought the property in a dilapidated state, in this case with the windows already in need of repair, then the repairs you have carried out are improvements and the expenditure is capital, not revenue.

Similarly if you used to live in the property, the state of the property when you decided to move out and let it will be key.

Boilers need servicing annually so that is clearly revenue expenditure and claimable.
http://www.hmrc.gov.uk/manuals/pimmanual/PIM2020.htm

anselld

Regarding pre-let expenditure, it would still need to meet the test of "wholly and exclusively" for business use. So, if this was previously your own residence for example you could not claim for expenses incurred whilst you were resident. If you bought it specifically as BTL and had some revenue expense leading up to first let this would be an allowable expense at the date first let.

chrismac1

Good advice from jimmo. From a practical point of view, you claim the boiler servicing and the window repairs and document the reasons why the window repairs are revenue and not capital You have this ready so you can respond to any HMRC letter on the subject within 24 hours of receipt..

In the last 4 years I must have submitted something like 700 rental accounts on self-assessment. About 30% of these I reckon had significant repairs being claimed.

Total number of revenue / capital challenges to date = 0.

WalletFullOfMoths

Thanks Jimmo. The windows were rotting single-glazed sashes, I replaced them with double glazed wooden sashes, which I know HMRC would normally class as a captial expense, but I've read several articals online like this one at www dot tax-advantage.co.uk/landlords/advice-for-landlords (sorry, I can't post links because I'm new) that say HMRC will now accept replacement windows as revenue expenditure.

I wondered if anyone has experience of this?

"Similarly if you used to live in the property, the state of the property when you decided to move out and let it will be key." Can you expand on what you mean by this - do you mean that if the work was done before the first rental agreement started (and I was living at the property) that I can't claim for it?

chrismac1

Repalcement windows and doors are very common. There are various tax cases on this sort of thing, you have legal precedent on your side and even the HMRC site itself acknowledges that like for like replacement is fine, taking into account changing times and technologies.

Your risk is in my view considerably less than 1%. If you got an enquiry (less than 3% likely) and you got a very diligient and pedantic inspector (less than 50% likely) then you might have a bit of a battle.

WalletFullOfMoths

Thanks ChrisMac, I missed your first post whilst I was writing my reply. Good to know your experience, very helpful.

Thank you!

suso

don't be fooled by chrismac experience, it is all in his land of make believe.

what he has actually said is if you claim it and it is reviewed by a compliance officer who knows what they are doing, it will be a struggle to claim it.

he just thinks it is unlikely that it will be reviewed.

BargainHunters

I would claim all your costs as valid repair costs. I had similar costs and when I completed my tax return with http://www.nextdaytax.co.uk their advisor said it was allowable against my profits.

I know how you feel with HMRC their helplines are terrible!!