Cutting tax from rental property - some questions

simonfitba

Hello all,

I currently have a rental property (my old flat) which is mortgage-free. I married and bought a family home.

Just wondering when it comes to my tax return for the rental income, can I claim back the following...

1. Interest on the mortgage on my family home (probably not, just thought I'd ask)

2. Set-up costs when renting the flat (some furniture etc.)

3. My wife (who doesn't have any income) has done some maintenance work on the flat and I paid her for labour and materials rather than employ a tradesman. Can I claim this as an expense?

4. The property needs a new kitchen (it's 30 years old). Can this be claimed for in the future?

5. Can I pay someone who isn't a qualified accountant to help me with my return and then claim this fee back?

Thanks in advance for any advice you all can give. Tax is a bit of a minefield and I don't want to wrongly claim for anything by mistake.

All the best,

Simon

kidmugsy

simonfitba wrote: »

I currently have a rental property (my old flat) which is mortgage-free.
1. Interest on the mortgage on my family home (probably not, just thought I'd ask)

2. Set-up costs when renting the flat (some furniture etc.)

3. My wife (who doesn't have any income) has done some maintenance work on the flat and I paid her for labour and materials rather than employ a tradesman. Can I claim this as an expense?

4. The property needs a new kitchen (it's 30 years old). Can this be claimed for in the future?

5. Can I pay someone who isn't a qualified accountant to help me with my return and then claim this fee back?

1. Oh you optimist, you. But you could consider taking a mortgage on the flat and paying off some mortgage on your house. I suppose that might work - ask an accountant.

3. Have you considered gifting the flat to your wife? She'd get the rent tax-free, at least up to her Personal Allowance vs income tax (£11k this year).

silvercar

1. It is the purpose of the money that counts not where (or if) it is secured.

2. Actual costs then yes.

3. yes if she wants to invoice you and declare the income.

4. improvements go against capital, repairs against income. So replacing an existing fitted kitchen goes against rental income. Putting in a fitted kitchen if there never has been is a capital improvement and would go against any CGT when you come to sell.

5. Yes

All my understanding of the rules, I'm not qualified.

booksurr

1. no - it was not used to fund the business, it was used to buy your home. You could however reverse it and put the mortgage on the rental and pay off/down the residential mortgage - that interest would be allowed as its called withdrawing capital from the business - http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

2. yes, note as from 6/4/16 when you come to replace that stuff it falls under the renewals basis if you so chose rather than the wear and tear allowance (which has now been abolished)

3. yes, but she will have to declare it as self employed income so that means informing HMRC she is running a maintenance business. The materials costs are fully claimable whether she is paid for the labour or not

4 depends if you are replacing like for like (= repair = allowable) or whether there quality of the new kitchen is HUGELY greater (ie an improvement so capital so no, claim against future CGT)

5. yes, provided they submit an invoice although given the nature of your questions why do you think they will know any more about it than you do? If they do why aren't you asking them these questions? There is a reason you use qualified accountants in the first year - they get things right!

EDIT - silvercar was quicker to the draw

simonfitba

Many thanks all.

The help for the tax return was offered from someone who is a book-keeper by trade. Although I can see how a proper accountant would be the way to go.

silvercar

1. no - it was not used to fund the business, it was used to buy your home. You could however reverse it and put the mortgage on the rental and pay off/down the residential mortgage - that interest would be allowed as its called withdrawing capital from the business - http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

There is a general rule that the mortgage for the rental property doesn't need to be secured on the property in question (indeed it doesn't need to be secured full stop, an unsecured loan would be just as allowable) ie it is the purpose of the money that counts not where it is secured.

So in the reverse situation to the OP, where someone takes out a mortgage on their family home in order to fund a BTL, the mortgage interest is an allowable expense. Could it be argued that, in this case, OP is withdrawing capital from the business by borrowing the capital value of the BTL, but securing that money on their family home rather than on the BTL?

Savvy_Sue

booksurr wrote: »

3. yes, but she will have to declare it as self employed income so that means informing HMRC she is running a maintenance business.

Surely if this is all she's done, and what the OP paid her was less than her personal allowance, and any other source of taxable income (OP says she has none) does not cause her to exceed her personal allowance, she needs do nothing more than keep records ...

sheramber

OP doesn't say her payment as below the personal allowance.

NIC payments could be due depending on income level.

superM

silvercar wrote: »

There is a general rule that the mortgage for the rental property doesn't need to be secured on the property in question (indeed it doesn't need to be secured full stop, an unsecured loan would be just as allowable) ie it is the purpose of the money that counts not where it is secured.

So in the reverse situation to the OP, where someone takes out a mortgage on their family home in order to fund a BTL, the mortgage interest is an allowable expense. Could it be argued that, in this case, OP is withdrawing capital from the business by borrowing the capital value of the BTL, but securing that money on their family home rather than on the BTL?

What about if someone takes residential mortgage but then let the property out. I know this is mortgage fraud but will HMRC allow interest payment as an allowable expense?

silvercar

superM wrote: »

What about if someone takes residential mortgage but then let the property out. I know this is mortgage fraud but will HMRC allow interest payment as an allowable expense?

Yes.

hmrc won't discuss your tax affairs with mortgage lenders, that would be a serious breach of data protection.

silvercar

To expand on the above further, this is the information a lender may ask the hmrc - nothing about sources of income eg rental income:

https://www.cml.org.uk/policy/policy-updates/all/the-mortgage-verification-scheme/