Self Assessment - losses carried forward

mustnotspend

Hi there, hoping to get advice on dreaded SA...

The story is about income from property, Basically in:

2010 - 2011: I made about 5k loss, needed to replace bathroom and boiler...
2011 - 2012: I'm looking at around £3k profit. This is my only income in this tax year, so really I've got £7,500 to tax free allowance to 'use up'

however, in 2012 - 2013 I will again be looking at some £3k income from property but I'm also fully employed and on PAYE, so tax free allowance is already used up.

So, the question is this:
- can I decide NOT to carry my 2010/11 losses forward to 2011/12 and just use tax free allowance?
- will i be able to carry the 2010/11 losses to 2012/13 or are you limited to carry forward only the prior year?

any thoughts?

Many thanks in advance

nomunnofun

Losses for 2010/11 must be carried forward to 2011/12.

£3000 of your £5000 loss will be utilised in 2011/12. The remaining £2000 will be carried forward to 2012/13.

With property losses you have NO other options but to carry forward against future property income.

jimmo

You might want to reconsider your £5,000 loss for 2010/11.

1) Were the replacement bathroom and boiler really repairs for wear and tear arising whilst the property was let?

2) Were they improvements to a property that was in a dilapidated state when the decision was made to let it?

Repairs are deductible against letting income. Improvements are deductible against Capital Gains when the property is sold.

http://www.hmrc.gov.uk/manuals/pimmanual/PIM2020.htm

As far as I can tell from your post, the lettings loss, as claimed, is of no practical use to you and it will fritter away against future profits which would not be liable to tax in any event.

It is probably not possible to judge now whether improvement costs will be useful to you but at least they have a potential use.

You may also find this thread, where the OP was trying to achieve the opposite to you, interesting.

https://forums.moneysavingexpert.com/discussion/4363649=

You have until 31 January 2013 to amend your 2010/11 Return if there is anything to correct..

http://www.hmrc.gov.uk/sa/correct-repay.htm#1

mustnotspend

Thanks both for the responses and thanks for the links jimmo... Some weekend reading...

mustnotspend

Having started to read through the various manuals and guides I am now more confused than ever!

In 2010-11 (my second year renting), I replaced boiler and bathroom. The reason I replaced was cos the old ones were effectively 15 or so years old, unreliable, needing too many call-outs the previous year, and generally looked old. I selected basic models eg white suite, white tiles etc.... So I had concluded that these were renewals and deducted from income for that year. Hence the loss...

Question this time is about the 10% wear and tear... Depending where in the help guides you're reading it says (as I understand):

- you can claim 10% for moveable fixtures and fittings (whereas bathroom and boiler are considered fixtures integral to the building)
- you cannot decide to do renewals for one type of asset and 10% w and t for other assets! Or change from one method to the other over years...

So the question is, can I still claim my 10%?

So far I've claimed
- 2009 about £300 for callouts (profit £1,500)
- 2010 7k renewals (loss 5k)
- 2011 looking at (£3k profit and looking to claim 10% W and T????)

Any thoughts?

nomunnofun

You cannot change to wear and tear if you have previously opted for the renewals basis.
Did you read jimmo's post?- the explanation that you have give for the athroom repairs strongly adds weight to his concerns regarding the correctness of your claim in 2010/11 and, thus, the return itself.

jimmo

It’s a bit like the MSE guide to house insurance.

The building is the building and anything permanently fixed to. The contents are what would fall out if you could turn your house upside-down.

The bathroom and the boiler are part of the fabric of the house and you claim the repairs and maintenance as when they occur.

Carpets, curtains, furniture free standing cookers washing machines fridges etc are contents and you can choose the 10% wear and tear allowance on those instead of claiming the costs of repairs and renewals.

I don’t know what you looked up but does this make it any clearer?

http://www.hmrc.gov.uk/manuals/pimmanual/PIM3200.htm

nomunnofun

jimmo wrote: »

It’s a bit like the MSE guide to house insurance.

The building is the building and anything permanently fixed to. The contents are what would fall out if you could turn your house upside-down.

The bathroom and the boiler are part of the fabric of the house and you claim the repairs and maintenance as when they occur.

Carpets, curtains, furniture free standing cookers washing machines fridges etc are contents and you can choose the 10% wear and tear allowance on those instead of claiming the costs of repairs and renewals.

I don’t know what you looked up but does this make it any clearer?

http://www.hmrc.gov.uk/manuals/pimmanual/PIM3200.htm

Any thoughts on the possible capital nature of the bathroom repairs jimmo?

mustnotspend

Thanks both. Yes 3200 is the one i'm readings long with the Property Rental Toolkit.

So my interpretation atm is that
- the 10% on contents can stand alongside renewals for buildings and therefore I can claim W and T for moveables in 2011
- I've missed an opportunity to claim 10% W and T in 2010 for the [STRIKE]immoveables[/STRIKE] moveable fixtures and fittings? And need to consider whether I must / should refine my tax return.

But now it seems that the issue is whether or not the repairs were actually repairs or improvements...

Off to re-read PIM 2020

jimmo

nomunnofun wrote: »

Any thoughts on the possible capital nature of the bathroom repairs jimmo?

As I’m sure you already know arguments about whether replacing major items such as central heating, kitchens and bathrooms are capital or revenue have existed for years and years.

It seems that the OP is pretty new to the lettings business and that implies that the property has only recently been put to letting.

The OP could have owned and lived in the property for 20+ years and actually bought the original boiler which has been replaced. In that case it would be easy to see why the OP would view the replacement as repairs and maintenance.

However the key question is the state of the boiler at the commencement of the lettings business.

Did the lettings business acquire a knackered boiler in desperate need of replacement?

Did it acquire an elderly boiler which was functioning perfectly adequately but then suddenly broke down and became a write off?

Did the lettings business acquire an adequate boiler but believe that its age could be a big negative to the property’s appeal to prospective tenants?

Normally, I would expect HMRC to look to challenge significant pre-letting expenditure on things like new boilers and bathrooms as being capital expenditure but in the OP’s case they would not do so because there is no tax at stake.

nomunnofun

Thanks jimmo - an excellent and comprehensive post