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PIM2505-When to claim estimated Council repairs
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Moe09
Posts: 18 Forumite
in Cutting tax
Just looking at PIM2505 - Sorry this is urgent & long - I think I qualify for revenue relief on my rental income? Husband and I exchanged contracts on a btl mortgage rental investment ex-council flat on 20.1.2014 and completed on 31.1.2014. Upon purchase we became responsible for a large 12k council Major Works bill for repairs to existing roof, maintain electrics, re-pointing, double-glazing (now allowable), fire doors, etc. as far as I can tell block repairs rather than capital improvements. Although invoice was addressed to the previous owner dated 22/30.1.2014 (between exchange and completion) we became liable for the bill upon ownership.
After completion all the bills were put in both our names as joint owners, by the council. (I wanted the council to put the bills solely in my name as have no other income, but they wouldn't.) I paid it off in quarters during the 2014/15 tax year - which I'm just tackling now as my first ever tax return.
After some paint repairs, family illness/delays, during which the flat was vacant, we finally started earning rent from Dec 2014 of 1,100 pcm, which amounts to £4,400 for my tax year upto April 2015. We were paying the btl mortgage, bills and council tax during the 10 month vacant period before letting.
The 12k Major Works bill was an 'estimate' but I still had to pay it. The 'actual' bill is not due until say October this year. So assuming we're/I'm eligible under PIM2505, can I claim it as part of my rent revenue relief for 2014/15, or do I have to wait until 2016/17? I assume I'd be able to carry the 12-4.4k = 7.6k loss over to 2015/16? If I am able to claim the whole 12k for 14/15, would I somehow need to make an adjustment to show any refunds/extra costs to my return in 16/17, after I get the 'actual' bill this October?
The same question of 'which year' to claim relief applies to annual Service Charge bills, when I don't get the actual one until 20 months after the estimate. However the Service Charge is slightly different in that it is ongoing, so any rebates/extras get credited/debited from the ongoing estimated bills until the property eventually gets sold. Whereas large Major Works bills are hopefully less frequent and not sequential.
After completion all the bills were put in both our names as joint owners, by the council. (I wanted the council to put the bills solely in my name as have no other income, but they wouldn't.) I paid it off in quarters during the 2014/15 tax year - which I'm just tackling now as my first ever tax return.
After some paint repairs, family illness/delays, during which the flat was vacant, we finally started earning rent from Dec 2014 of 1,100 pcm, which amounts to £4,400 for my tax year upto April 2015. We were paying the btl mortgage, bills and council tax during the 10 month vacant period before letting.
The 12k Major Works bill was an 'estimate' but I still had to pay it. The 'actual' bill is not due until say October this year. So assuming we're/I'm eligible under PIM2505, can I claim it as part of my rent revenue relief for 2014/15, or do I have to wait until 2016/17? I assume I'd be able to carry the 12-4.4k = 7.6k loss over to 2015/16? If I am able to claim the whole 12k for 14/15, would I somehow need to make an adjustment to show any refunds/extra costs to my return in 16/17, after I get the 'actual' bill this October?
The same question of 'which year' to claim relief applies to annual Service Charge bills, when I don't get the actual one until 20 months after the estimate. However the Service Charge is slightly different in that it is ongoing, so any rebates/extras get credited/debited from the ongoing estimated bills until the property eventually gets sold. Whereas large Major Works bills are hopefully less frequent and not sequential.
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After completion all the bills were put in both our names as joint owners, by the council. (I wanted the council to put the bills solely in my name as have no other income, but they wouldn't.) I paid it off in quarters during the 2014/15 tax year - which I'm just tackling now as my first ever tax return.
I can't answer regarding the timing, however regarding the split between you and your husband it does not matter who pays the bills or who receives the rent. If you are joint owners then both the income and the expense must be split equally between you.
The only way to achieve an unequal split of income and expense is to own in unequal shares as Tenants in Common with Deed of Trust defining the percentage split. You must also elect to split in line with actual ownership via HMRC form 17. You cannot do this retrospectively.0 -
Thanks A, I know about Form 17 but it's the timing I'd like to know for this year's SA, perhaps someone can help?0
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Oh also thank you Anselld for reminding me of the 50/50 split - never done a return before so am assuming I have to put down all the bills and income generated from the property as half and my husband will put the other half on his return? This means the 12k bill would become 6k and the income would be 2.2k, meaning a loss of 3.8k each? I'd be grateful for clarity on this - sorry if it seems obvious. Assuming the same 50% process for capital gains which we also have to do, 11k relief each, etc.0
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Oh also thank you Anselld for reminding me of the 50/50 split - never done a return before so am assuming I have to put down all the bills and income generated from the property as half and my husband will put the other half on his return? This means the 12k bill would become 6k and the income would be 2.2k, meaning a loss of 3.8k each? I'd be grateful for clarity on this - sorry if it seems obvious. Assuming the same 50% process for capital gains which we also have to do, 11k relief each, etc.
correct all income and all expenses are split 50/50 if that is how you own / have not registered otherwise via Form 17
as for the repair bill then as you became liable for it upon purchase you can claim it as pre trading expenses per the Bim. Obviously you claim what you paid out in 14/15 split 50/50. When the final bill comes in either you will have an adjusting further payment to claim next year or you will get a refund which you must report as "income", again both split 50/500 -
Oh also thank you Anselld for reminding me of the 50/50 split - never done a return before so am assuming I have to put down all the bills and income generated from the property as half and my husband will put the other half on his return? This means the 12k bill would become 6k and the income would be 2.2k, meaning a loss of 3.8k each? I'd be grateful for clarity on this - sorry if it seems obvious. Assuming the same 50% process for capital gains which we also have to do, 11k relief each, etc.
That is correct, everything 50:50 until you change ownership and register Form 17. Not sure why you are doing Capital Gains at this stage as you didn't mention any disposals.0 -
Many thanks both Booksurr and Anselld. I also found BIM46905 'spreading relief', which I think is relevant to ongoing Service Charges. So I will put down the s/c estimates as the date they were invoiced.
I'm also having to do a CGT for a house we sold last February 2015. It was bought for 545k as an intended rental house in April 2014, just after buying our rental flat (above) but also as somewhere larger we could live whilst we did up our own house first. We remortgaged our own house - residential repayment mortgage, fixed rate - so we could buy our investment in cash.
I was advised by an accountant at the time I could still claim the interest part of the mortgage repayments as rent relief when we came to let it out. Sadly we never lived there or let it out as the same family illness (mentioned in first post) slowed us right down and we didn't get a builder in as everything was so stressful, so the house was vacant for months and I was paying all the council tax, and bills during this time.
Then as we were considering builders we found out there was prolific Japanese Knotweed growing behind the garden fence! We thus thought we'd prefer to try and sell rather than invest thousands improving a house which might be blighted.
We managed to sell the house for 610k in Feb 2015 (we'd owned it for 10 months) for 65k more than we bought it but because we hadn't got anyone renting and the mortgage payments are high I don't see it as a real gain. We now need to do CGT for it. I know we can't claim for any private residence relief but that we can claim for 11k relief each and that I can claim solic's legal fees, survey, SDLT, estate agent and for any improvements to sell the property under CGT - but are we also able to claim for the mortgage interest, bldg. insurance, council tax, utility bills and mortgage arrangement/booking fees under revenue relief as per PIM2505, since we had initiated our rental 'business' with the ex-council flat in the same year?
FYI we used the cash/remortgage money from the blighted house sale in Feb, to buy another house the following month in Mar 2015, at similar cost, as we still wanted to buy another rental property. This was rented for a couple of months but now is vacant for work to be done.
Hence why I mentioned CGT earlier and assume I only put down 50% of all CGT/revenue gains and losses on my own tax return. Sorry it's another long one and again we would be grateful for your thoughts.0 -
p.s. Are we allowed to claim for mortgage arrangement/booking fees as part of rental revenue relief, along with our interest payments on our BTL mortgage, even if the mortgage was initiated in January 2014, three months before the start of the 14/15 tax year? According to the lady on the Which? on-line video, we can claim for this rental income expense but not if it's outside the tax year? I thought it would be claimable according to PIM2505? Thank you again for any input.0
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Tricky one. If you can show that the property was fully intended for the letting business and there was a genuine change of circumstances leading to a decision to sell one of the rentals at that time then you may have a fighting chance of claiming relief for the revenue expenses associated.
As soon as you say you were planning to live there that argument goes out of the window as the purchase was not wholly and exclusively for the rental business.
(but I am not an accountant, it's just an opinion)0 -
Thanks A, I see what you mean but we definitely did buy it as a rental investment. I do have notes from phone conversations with Council tax people, and I think the mortgage lenders, about intending to rent it out, so the conversations might've been recorded. Also the woman at the CTax office said I could claim for another month's free council tax due to unfurnished property if it was rented for a minimum of six weeks then became vacant again. Hence I did put an advert on a local forum for people to come and see it for a temporary rental, which they did, but they didn't want it as it needed work. I'd have to dig those ad's out from somewhere.
Do you happen to know the answer to my query re. mortgage arrangement fees?0 -
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