Expenses for BTL properties

JonaQ

I owned a BTL property that I have been renting for 1 year now, although there are still losses to be accounted for year end 20/21.

A second BTL property was purchased in March this year where I had it renovated and incurred expenses, the property started its rental in Aug this year.
 
Can the expenses for the second BTL property be only included after second property starts renting, ie for year 21/22 or should it be declared for year 20/21 as there are still losses from the first BTL property?  

Grumpy_chap

JonaQ said:

I owned a BTL property that I have been renting for 1 year now, although there are still losses to be accounted for year end 20/21.

A second BTL property was purchased in March this year where I had it renovated and incurred expenses, the property started its rental in Aug this year.
 
Can the expenses for the second BTL property be only included after second property starts renting, ie for year 21/22 or should it be declared for year 20/21 as there are still losses from the first BTL property?  

Your question is a bit confusing in the way it is worded but, essentially, all income and expenses should be correctly accounted for at the date they arise.  The established rules can then be used to assess off-set and / or carry forwards / backwards.  You also need to correctly account transactional events as capital or revenue and assess the tax liabilities / allowances accordingly as income or CGT.

Given you have started a successful business and building a property portfolio in quick order, the best advice that can be given in a forum such as this is to engage the services of an Accountant to provide proper, professional advice with full consideration of all facts.

JonaQ

The reason I asked was I done my self-assessment in April this year and did not include the expenses between March and April as I was thinking of consolidating the expenses (incurred by second property) when the second rental property starts.   

Grumpy_chap

From what I understand, all expenses should be correctly recorded as transactions at the correct date that the events occur.  Which tax year they fall into is then a matter of fact.  

From what you have said, most (perhaps all) of the expenses incurred for the second property acquisition in March and renovation up until August will be "capital" and not "revenue" expenses.  Such expenses reduce the future CGT liability but not the current income tax liability.  AIUI, income related expenses only generally arise for a BTL once the property is let.

These are quite involved rules, hence the reason for recommending an Accountant.

If you have submitted the tax return for the year ending 2021, then I understand that you are still in time to re-submit and correct without penalty.  The process for this is not one I am familiar with as it is never one I have needed to use.

Jeremy535897

It depends. All your UK rental properties (other than furnished holiday lets) are treated as one business. This is important, as there are issues (highlighted in earlier posts) concerning expenditure incurred before a property business starts. You are not in that position. That does not mean you have carte blanche to claim everything you spent. Have a look at https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46935

Relief for expenses is given on a cash basis unless you elect otherwise.

JonaQ

Jeremy535897

Just for interests, how is furnished holiday let different? Using my OP situation to relate to holiday letting. 

For cash basis - am I right to say that BTL mortgage interests to be counted as expense is only limited to £500 per year? Say my BTL interest per year is £1200, this means I can only include £500 for my SA. While the other £700 will be for future?  

Jeremy535897

Furnished holiday lettings are treated more favourably for some tax purposes, but there are strict conditions:
https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2020

The £500 limit does not apply to property businesses, but you cannot claim finance costs as a deduction. You claim them separately on the self assessment tax return and receive a basic rate tax credit. If you cannot set them all off, there are complex provisions for carrying the excess forward.

JonaQ

Thanks Jeremy

By finance costs - do you mean loans and not mortgage interests.

Jeremy535897

All borrowing, whether secured or unsecured, mortgage, loan or overdraft, and arrangement fees etc are finance, and the costs (interest, arrangement fees etc but not repayment of principal, which can never be claimed) are finance costs for this purpose.