Newbie Landlord - Tax Question

fraggle7581

Hi peeps :hello:

I became the proud owner of a new house back in March of this year, and before I had chance to move into it I was seconded for 6 months to another office too far away to commute. So... I have since rented it out through a reputable letting agent, and have tenants. So far, so good... however... I'm completely confuzzled by all this tax malarkey.

The house isn't a buy-to-let, as at the time of buying I didn't envisage a secondment, so it's just a normal repayment, residential mortgage. After the 6 months I am DEFINITELY moving back into the house. I bought the house at a very reasonable price as it needs modernising, but it is in a habitable state (just!).

So far I've spent £1,270 to get it up to rentable standards:

Front Door £450
Bathroom Window £200
New Fusebox & Electric Safety Certificate £250
Gas Safety Certificate £50
New Bedroom Carpets £180
Repair broken step £50
Decorating and Fitting Sundries £80

I've kept the receipts so I can submit my tax return in due course.

I've been told I can 'reclaim' the above, but, and forgive me for sounding stupid, what exactly am I reclaiming? What is a realistic figure / refund amount I'm likely to receive?

I've never rented a house before so I really am clueless! Any help / advice gratefully received. Many thanks.

RabbitMad

It means you can off set all the above against any rental income you receive.

Therefore if your rental income for 6 months was £2270 then you would only need to pay tax on £1,000 of it.

However I would query whether all of the above would be allowable (I'm not an expert by any means but I would guess you'd need to do most of those things anyway, and as you've done them before you've let the place has your rental business begun yet?)

You can also off set any mortgage interest for the 6 months.

What happens in 6 months time if the tenant doesn't move out?

Good luck - I found having tenants a right pain in the butt so I'm selling mine.

fraggle7581

Hi RabbitMad

Thank you very much for you prompt response.

I'm renting it for £425pcm so would earn £2550.

Apart from the bathroom window, you're correct, the repair works and front door were all done prior to it being rented, but in fairness, the house was on the rental market at this point. Presumably this doesn't qualify as being a 'business' until tenants actually move in?

I understand I benefit from the new door and peace of mind of gas and leccy safety checks once I move in, but it would be jolly nice to benefit financially too!

Thankfully the tenancy is only 6 months, and the tenants come with good references (doesn't mean they won't squat though, I know!) so fingers crossed it'll all run smoothly.

Many thanks for your help. Hope you manage to sell your house quickly!

daisyroots_2

Hi Fraggle
You must have the Gas (CORGI) certificate and the Electricity Safety Cert. by law before you can let, so you can set them against tax. I would argue you can set everything you have itemised, because the place needs to be in a "lettable" condition. You can't expect tenants to put up with a broken doorstep, new carpets and decoration are fairly standard for a new tenancy, windows need to be sound and secure. I have several letting properties and I would set all this against tax, the Revenue have never questioned it.

Most tenants are decent, and more interested in living their own lives than in making yours difficult, so don't worry, they will (almost certainly) move out at the end of 6 months, and if they don't the law's on your side.

fraggle7581

Thank you very much daisyroots, really appreciate your help. I agree with you that the work done so far was done so that it could be rented. The front door lock was absolutely appalling, and affected the rest of the door. It was old anyway, and had to be replaced. I'm confident it wouldn't have passed the Letting Agent's checklist, therefore it was a necessity. Fingers crossed the Inland Revenue see it that way, too!

Many thanks.

garysletters

most expenses fall into 2 catagories.

a) any cost which is wholly to enable the property to be rented out can be claimed
b) anything not wholly to enable a letting can only be used to offset CGT on sale of property, but as you intend to move in this won't apply.
By the letter of the law, and replacement door would probably not be tax deductible as it would be classed as an improvement, however you could argue that without an operable door the property would not be in a fit state for letting.

Things such as replacing carpets is more complex. (although I'd claim it as getting the property into a fit state to rent as above)
Normally you make a decision when you start to rent a property as to how to claim for items that wear out over time. You can either claim 10% of your rental income to cover their replacement, or you claim the full cost as and when you change them.
In your case you are only letting it out for a few months so it doesnt really apply and you will probably want to claim it under point "a" above.

The only problems I would foresee is that all your reciepts will be dated in advance of the date of any income and also that had you not let out the property you would still have incured most of the same costs, thus it could be said it wasn't WHOLLY for the purposes of letting it out.

Best just call your local IR dept.....they really are usually surprisingly helpful.

Good luck

alxworker

Hi

You should also be aware that you can "write off" the following

The agents fees
The interest you are paying the mortgage co.(even tho its not a buy to let mortgage)
Property insurance

If this (and the above) dont exceed the £2500 of rental income you are lucky

I would be very surprised if you had a tax liability owning just one property -not many people do unless they have no mortgage

you will need to fill in a self assement form (available to d/l on the inland revenue website) to declare your income & expenditure

thesaint

daisyroots wrote: »

Hi Fraggle
You must have the Gas (CORGI) certificate and the Electricity Safety Cert. by law before you can let, so you can set them against tax. I would argue you can set everything you have itemised, because the place needs to be in a "lettable" condition. You can't expect tenants to put up with a broken doorstep, new carpets and decoration are fairly standard for a new tenancy, windows need to be sound and secure. I have several letting properties and I would set all this against tax, the Revenue have never questioned it.

Most tenants are decent, and more interested in living their own lives than in making yours difficult, so don't worry, they will (almost certainly) move out at the end of 6 months, and if they don't the law's on your side.

It is not necessary to have an electrical safety certificate.
Only some houses in multiple occupation need one.

zappahey

thesaint wrote: »

It is not necessary to have an electrical safety certificate.
Only some houses in multiple occupation need one.

An electrical safety cert isn't required but it would be wise to get electrical equipment PAT tested (excuse the redundancy but that's what everyone calls it). In the event that a tenant gets zapped by the dishwasher, for example, then you can demonstrate that you took all reasonable steps to ensure the equipment was safe.

Gorgeous_George

Only the gas safety certificate is allowable against tax IMO. Everything else is money spent BEFORE the letting business was set in place.

Interest on the mortgage from day one of the letting is allowed for off-setting s well as:
10% of the rent for wear and tear.
Letting agent fees.
Your mileage at 40p per mile in connection with the business.
Expenses necessarily incurred for REPAIRS after the letting starts.

If you are still making a profit, hire an accountant!



GG

thesaint

zappahey wrote: »

An electrical safety cert isn't required but it would be wise to get electrical equipment PAT tested (excuse the redundancy but that's what everyone calls it). In the event that a tenant gets zapped by the dishwasher, for example, then you can demonstrate that you took all reasonable steps to ensure the equipment was safe.

It would've been bettter to quote the person who incorrectly stated that it was law to have an electrical safety certificate instead of quoting me who correctly stated that one was not necessary.