Money spent to get a property ready to rent out

jimmo

I am afraid I have to come back to the fact that the boiler was already leaking before it was decided that the flat would be let. It doesn’t matter that an owner/occupier could live with the fault, it just matters that the fault, existed pre-letting.

I agree that a boiler can break down or spring a leak at any time but, in tax matters what ifs don’t count. What actually happened is what matters.

Also, as I think you already know, HMRC have no say or influence over whether a repair or replacement is the right way to go. That is a decision for the property owner.

To me, the basic taxation principle is that the individual property owner and their lettings business are 2 separate entities and the individual effectively sells the property to the lettings business. For that reason, and I believe you understand this, the lettings business, can borrow up to 100% of the value of the property at the time it is brought into the lettings business.

Following that principle your daughter has sold a flat with a faulty boiler to her lettings business. In a normal sale either the vendor would have to fix the problem boiler before sale or give a discount. There is, of course, another alternative that the purchaser may fail to spot the problem boiler, pay full market value and be lumbered with the costs of repair or replacement. In a nominal sale HMRC simply wouldn’t accept that the purchaser (the lettings business) failed to spot the boiler problem which the seller (the individual) already knew existed.

You say you are confused. Whilst acknowledging that it is your family’s money at stake I am puzzled by that.

As far as I can see, apart from post #2 which was effectively withdrawn in post #6 no-one on here has even suggested that the cost of the replacement boiler could be a legitimate revenue expense of your daughter’s letting business.

That surely is a resounding no.

Carpets, being floor coverings, fit nicely into the HMRC model of furnished lettings(and the 10% wear and tear allowance). For unfurnished lettings they don’t even get a mention in the HMRC manuals so they would fall, by default, into “replacements” but that then begs the questions did they need replacement because of wear and tear during the letting period?

Did they need replacement because they were already past their sell by date when the lettings commenced?

Were they replaced to enhance the chances of successfully letting the property? That is not revenue expenditure. It is capital expenditure and not claimable.

Repainting the flat in neutral colours has clearly been done as a selling point, not as a necessity for the maintenance of the flat. It is capital expenditure and not allowable.

Hopefully that covers the theory and principles. To my mind nothing is claimable but maybe you should expect that from a taxman. However you and your daughter have to deal with the here and now and deal with your own consciences.

As regards CGT no she doesn’t have to establish the market value of the property when the lettings business commences. After allowing for expenses the capital gain will be the difference between the purchase price and the selling price. The resultant gain will be apportioned between exempt periods and chargeable periods. Details are here.

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

jennifernil

Thank you jimmo, that makes it all clear.

It wasn't you and the other posters that confused me, it was the other threads that people had linked to (as the circumstances were different from ours) , and the discussion surrounding them.

It is good to get things explained, and the amount of tax relief would not have been that much anyway.

jimmo

Glad it helped. I was a bit concerned it was turning into a lecture as I typed it up but, after several attempts I decided to publish and be damned.

The one thread I linked to earlier was different to your daughter’s situation in that the OP there appears to have bought the property for letting but, to me, the principles are the same. In both cases the lettings business acquired a property with a faulty boiler and the cost of the new boiler is capital not revenue. I also think the OP in that other thread reached the wrong conclusion but that was his or her decision.

To try and dot the Is and cross the Ts on this HMRC will always suspect that claimed pre-letting expenditure is really capital expenditure but a couple of hundred spent making the place marketable is not going to set the taxman’s heart aflutter. They will think its probably wrong but not worth challenging.

A couple of thousand is a different prospect and may well be worth challenging but if a challenge is made HMRC will go through everything, including the couple of hundred, with a fine toothed comb.

If your daughter wants to get it right, I firmly believe she should claim nothing. If your daughter wanted to know how much she could get away with claiming that is a very different prospect and I have to admit that the chances are that she would get away with the lot, boiler, paint and laminate flooring.

That is what Self Assessment is all about. Do it right and you will pay the correct tax. Do it wrong and you will probably get away with it but if you are caught fiddling you really will suffer.