Investment Property - Revenue Costs & Capital costs ?

ian5708

Hi everyone,

I've recently bought, renovated and rented out a second property.

Over the past 10 years I have rented out a flat and I have always done my own HMRC returns online and I think I've been pretty certain on what I can class as expenses such as ground rent, building insurance, fixing taps, fences, heating etc. I have not had any queries with HMRC to date.

My second rental is a maisonette which I purchased with a short lease of 49 years remaining. After its purchase I extended the lease by 90 years for a premium of £13,750

I had to pay the Landlords legal fee of £1000, his Valuation fee of £780 and of course my legal fees for the lease extension.

The property hadn't seen any decoration or modernisation in the previous 35 years and to get it up to a good standard to rent out I did almost all of the work myself over 18 weeks.

I'm a little unsure of what are capital costs and what are my revenue costs which I can offset against my rental income as expenses.

The following I believe are capital costs:

£13,750 Lease renewal premium
Central heating system(installed by gas safe engineer)
New Bathroom suite
Bathroom tiles, grout, sealant, taps, pipes, fittings
Bathroom flooring
New kitchen floor
Lounge mirror over fireplace
Lighting
Cooker hood & Stainless splashback
Replacement curtain poles for rails
Vertical blinds
Replacement carpets
Replacement internal doors and fittings
Total £4584
Plus SDLT on purchase


The following I 'think' are Revenue costs:

Electrical work - new consumer unit, wired co2 detector, smoke alarms, cooker feed, replacement switches/sockets
Decorating Materials Paint - wallpaper/paste, wood, caulk, plaster,fillers & sealants, sand papers, solder, glue, cloths, drop sheets, anti mold,
Decorating Tools - Electric sander, Heat gun, paint roller & sleeves, brushes, buckets, dust masks, paper hanging tools, blow torch, soldering iron, electric saw and blades, screws etc
New electric fire in place of a very old gas fire.
Replacement door handle & Lock
Key cutting
Building Insurance
Replacement lamp shades and lighting
Landlords Lease extension legal and survey fees £1780
My lease extension legal fees and connected costs £470
My travel costs from home to and from the property 2712 miles @ 45p/m £1220
Total £6345

I know from browsing info on the web that if I spoke with a number of accountants or even different HMRC officials there would probably be different interpretations of the law and what they deem to be capital and what they consider revenue.

However do you think I'm reasonably correct here?

If I get it wrong and get my return investigated could I find myself in a lot of trouble and facing significant financial penalties for getting in wrong and not using a accountant to file my return?

Finally, I did not pay any stamp duty on the lease extension premium. I extended the lease with the co operation of the Landlord a few days after the property purchase completion date. Obviously, if the vendor had extended the lease before I made the purchase, that premium would have been added onto the sale price and I would have paid more SDLT on the purchase price.
Am I legally liable to pay SDLT on the lease extension premium? Could it be deemed a 'linked transaction' and that I have avoided SDLT by extending the lease seperately?

I have tenants in now and they pay £530 PCM

I know I'm asking a lot but I would appreciate any sound advice to ensure I'm complying with UK tax law.

Many thanks

Ian

Cakeguts

Capital costs are what you pay for before you let the property to the first tenant. After you have let the property you have costs that can be claimed against income.

Bluebirdman_of_Alcathays

Cakeguts wrote: »

Capital costs are what you pay for before you let the property to the first tenant. After you have let the property you have costs that can be claimed against income.

This is not true. Revenue expenses can be claimed on day one of the tenancy against income in the normal manner. It is the definition of capital expense vs revenue which is all important, not the timing of when they occured.

https://www.taxation.co.uk/articles/2010/10/20/21151/pre-letting-costs

I have only skim read the OP as it is very long (getting tax advice on the cheap), I would advise the OP sees an accountant to advise on each cost, but "replacement curtain poles", for instance, are without question a revenue, not capital expense, despite the cost being incurred before day 1 of letting.

Cakeguts

Bluebirdman_of_Alcathays wrote: »

This is not true. Revenue expenses can be claimed on day one of the tenancy against income in the normal manner. It is the definition of capital expense vs revenue which is all important, not the timing of when they occured.

https://www.taxation.co.uk/articles/2010/10/20/21151/pre-letting-costs

I have only skim read the OP as it is very long (getting tax advice on the cheap), I would advise the OP sees an accountant to advise on each cost, but "replacement curtain poles", for instance, are without question a revenue, not capital expense, despite the cost being incurred before day 1 of letting.

The information in the link is out of date.

Miss_Samantha

You can claim costs incurred before the property was let against income.

The link provided is correct.

See also the latest edition of HMRC's Property Rental Toolkit: https://www.gov.uk/government/publications/hmrc-property-rental-toolkit

Bluebirdman_of_Alcathays

Cakeguts wrote: »

The information in the link is out of date.

The link may be old, the pertinent tax rules are quite current.