Is this allowable loss for a BTL?

qwertyqwerty

Hi there I am trying to fil out my tax return for 21/22 and wanted to check if I can include this in the loss section.  I had some really bad tenants that left the house in such a state, the whole house needed a refurb.  There was dog poo left all over the house, a stench that wouldnt go and a destoryed kitchen and bathroom.  Whilst I had the whole house refurbed, I couldnt rent it out, my total losses in this were approx 16k (I have receipts for this).  I now have the house rented out, and my profit for the year was approx 6k (I used the £1000 property allowance, rather than add anything to the expenses section, as there wasnt much this year).  Am I ok to offset the profit with the loss I incurred last year?  If so am i ok to do it again next year, as I will still have considerable loss left over?  Thanks

Jeremy535897

Where you have a property business established before the work, that business continues after the work, and the work merely puts the property back into the state it was, rather than improving it, you can claim for that work. See:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

However, you cannot claim the property allowance in the same tax year as you claim for these costs. If the costs exceed the revenue from property in the tax year, the excess can be carried forward and used in future years. See:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4210
https://fintondoyle.co.uk/have-i-missed-out-on-tax-loss-relief-on-property/

qwertyqwerty

Thanks for the reply. So to clarify, if my rental income was 7k, I had losses of 10k from the previous tax year, not the one I am filing assessment for. I can then carry forward 3k as a loss? I’m not allowed to use the 1k allowance as I am using the loss carried forward instead? So I can’t say my profit was 6k (minus 1k allowance) and carry forward 4K loss

Grumpy_chap

qwertyqwerty said:

Hi there I am trying to fil out my tax return for 21/22 and wanted to check if I can include this in the loss section.  I had some really bad tenants that left the house in such a state, the whole house needed a refurb.  There was dog poo left all over the house, a stench that wouldnt go and a destoryed kitchen and bathroom.  Whilst I had the whole house refurbed, I couldnt rent it out, my total losses in this were approx 16k (I have receipts for this).  I now have the house rented out, and my profit for the year was approx 6k (I used the £1000 property allowance, rather than add anything to the expenses section, as there wasnt much this year).  Am I ok to offset the profit with the loss I incurred last year?  If so am i ok to do it again next year, as I will still have considerable loss left over?  Thanks

As I understand it, you can't mix and match.

Either, you use the Property Allowance which is a flat-rate offset of £1k for costs associated with the property rental, or you use actual costs.

It makes sense to use the Property Allowance if you have a very simple letting business with low costs and you wish to avoid admin.  Simply claim the flat rate allowance.  If your costs were £800, you win a bit.  If your costs were £1,200 you lose a bit.  Sometimes, losing a bit of tax in return for the simple records / avoiding need for detailed record keeping is a sensible approach.

Alternatively, use actual costs method of accounting.  It is more work and requires better record keeping but does allow for higher amounts of expenditure to be offset against tax.  It is a personal decision to decide where the balance between simple accounts (Property Allowance) and actual costs accounting is worth while but, I would suggest, if the allowable expenditure has reached £16k then that is worth the effort of keeping more robust records.

Further, in my experience, the number of cases where the Property Allowance really makes sense is very low.  This £1k covers all expenditure, not just expenditure after net receipts.  Particularly if there is a Letting Agent.  Say the property is £1k per month (£12k) and the LA takes £100 per month (£1.2k) that £1.2k has already used the Property Allowance.  If you then have to pay some low costs for miscellaneous items, say £600, your actual costs in that year are £1.8k.  You can't take the net payment from the LA £900 per month (£10.8k) and then apply the Property Allowance instead of the £600 miscellaneous costs.  That would be double-counting the LA fees.  Of course, if there is no LA, then low costs are more likely.

Jeremy535897

If you chose to use the property allowance for the year in which the loss arose, you have no loss as you are treated as if you only spent £1,000. You would have to amend your previously submitted return. If you claimed a loss on refurbishing the property in a previous year, why are you now asking what you can claim as an expense?

[Deleted User]

Jeremy535897 said:

If you chose to use the property allowance for the year in which the loss arose, you have no loss as you are treated as if you only spent £1,000. You would have to amend your previously submitted return. If you claimed a loss on refurbishing the property in a previous year, why are you now asking what you can claim as an expense?

Is the op saying? Income this year £3000 less £1000 allowance = £2000. Loss b/f 10000 - loss c/f 8000. I think he is.

Jeremy535897

purdyoaten2 said:

Jeremy535897 said:

If you chose to use the property allowance for the year in which the loss arose, you have no loss as you are treated as if you only spent £1,000. You would have to amend your previously submitted return. If you claimed a loss on refurbishing the property in a previous year, why are you now asking what you can claim as an expense?

Is the op saying? Income this year £3000 less £1000 allowance = £2000. Loss b/f 10000 - loss c/f 8000. I think he is.

So the question is whether the property allowance is available for 2022/23 if there is a loss brought forward from 2021/22. If this is the case, I see no reason why you cannot deduct the property allowance of 2022/23 before using losses from 2021/22. If your actual allowable expenditure was more than £1,000, you would deduct that before using any losses brought forward.

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

If you chose to use the property allowance for the year in which the loss arose, you have no loss as you are treated as if you only spent £1,000. You would have to amend your previously submitted return. If you claimed a loss on refurbishing the property in a previous year, why are you now asking what you can claim as an expense?

Is the op saying? Income this year £3000 less £1000 allowance = £2000. Loss b/f 10000 - loss c/f 8000. I think he is.

So the question is whether the property allowance is available for 2022/23 if there is a loss brought forward from 2021/22. If this is the case, I see no reason why you cannot deduct the property allowance of 2022/23 before using losses from 2021/22. If your actual allowable expenditure was more than £1,000, you would deduct that before using any losses brought forward.

Yes - I agree. It’s clarification from the op as to whether this is what is being asked that we need.

qwertyqwerty

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

If you chose to use the property allowance for the year in which the loss arose, you have no loss as you are treated as if you only spent £1,000. You would have to amend your previously submitted return. If you claimed a loss on refurbishing the property in a previous year, why are you now asking what you can claim as an expense?

Is the op saying? Income this year £3000 less £1000 allowance = £2000. Loss b/f 10000 - loss c/f 8000. I think he is.

So the question is whether the property allowance is available for 2022/23 if there is a loss brought forward from 2021/22. If this is the case, I see no reason why you cannot deduct the property allowance of 2022/23 before using losses from 2021/22. If your actual allowable expenditure was more than £1,000, you would deduct that before using any losses brought forward.

Yes, this is what I was asking about.  Sorry if I didnt explain that clearly.  Thanks for the answer, good news

[Deleted User]

qwertyqwerty said:

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

If you chose to use the property allowance for the year in which the loss arose, you have no loss as you are treated as if you only spent £1,000. You would have to amend your previously submitted return. If you claimed a loss on refurbishing the property in a previous year, why are you now asking what you can claim as an expense?

Is the op saying? Income this year £3000 less £1000 allowance = £2000. Loss b/f 10000 - loss c/f 8000. I think he is.

So the question is whether the property allowance is available for 2022/23 if there is a loss brought forward from 2021/22. If this is the case, I see no reason why you cannot deduct the property allowance of 2022/23 before using losses from 2021/22. If your actual allowable expenditure was more than £1,000, you would deduct that before using any losses brought forward.

Yes, this is what I was asking about.  Sorry if I didnt explain that clearly.  Thanks for the answer, good news

I suspected that that was the case. Got there in the end.