Help! Tax Relief on Repairs/Maintenance (Rental)?

[Deleted User]

aaryal said:

sheramber said:

You donlt get money back. You pay less tax.

Assuming you are due to pay tax on 10, 000 profit you would pay £4000 tax

  On 7000 profit you would pay  £2800 tax

 So your 3000 expenses gives tax relief of £1200.   

40% x 3000 _=1200  

Thanks. What happens if expenses is more than the rental income. 10k income. 12k expense = 2k loss. What happens in this scenario? 

I have answered that - question 3.

The loss of £2000 is carried forward to set against future rental profits.

sheramber

You are not due to oay any tax on your rental progit and , as  stated above, the extra losses are carried forward to set againt the next year's rental profit.

aaryal

[Deleted User] said:

Question 1 - Correct

Question 2 - 20% of £10000 is £2000. £1400 used, £600 carried forward. 

Question 3. The taxman will not refund anything! Loss carried forward to following year - £2000

Question 4 - £7000 repairs reduces your profit by £7000. Providing there IS still a profit your tax reduces by 40% of £7000.

Perfect thank you. All of the above makes sense now.
Very, very much appreciated.

Some final few questions:
If I have a loss (e.g. 10k rental, 12k repairs = 2k loss). That 2K does that start as a 2k expense for the next year then when you say it is carried over. So next year if I have 10k rental and no repairs, i still have 10k-2k = I get taxed on 8k instead of the full 10k in year 2 because the 2k carried over from year 1 correct?

uknick

aaryal, how long have you been renting the place out?  I ask because some of your questions are pretty much lesson 1.0.1 of running a rental property. 

[Deleted User]

aaryal said:

[Deleted User] said:

Question 1 - Correct

Question 2 - 20% of £10000 is £2000. £1400 used, £600 carried forward. 

Question 3. The taxman will not refund anything! Loss carried forward to following year - £2000

Question 4 - £7000 repairs reduces your profit by £7000. Providing there IS still a profit your tax reduces by 40% of £7000.

Perfect thank you. All of the above makes sense now.
Very, very much appreciated.

Some final few questions:
If I have a loss (e.g. 10k rental, 12k repairs = 2k loss). That 2K does that start as a 2k expense for the next year then when you say it is carried over. So next year if I have 10k rental and no repairs, i still have 10k-2k = I get taxed on 8k instead of the full 10k in year 2 because the 2k carried over from year 1 correct?

That’s correct. 

aaryal

uknick said:

aaryal, how long have you been renting the place out?  I ask because some of your questions are pretty much lesson 1.0.1 of running a rental property. 

Not long at all. Just recently started and getting used to the whole tax assessment thing.
I have an accountant doing it but I want to uderstand the mechanics of how it works hence asking you folks which is super useful - so thank you.

I'm pretty good with the maths, I'm just trying to understand how the rules work and haven't found an easy explanation so came on here. But now I think I have a pretty good idea based on the responses

Jeremy535897

aaryal said:

sheramber said:

You donlt get money back. You pay less tax.

Assuming you are due to pay tax on 10, 000 profit you would pay £4000 tax

  On 7000 profit you would pay  £2800 tax

 So your 3000 expenses gives tax relief of £1200.   

40% x 3000 _=1200  

Thanks. What happens if expenses is more than the rental income. 10k income. 12k expense = 2k loss. What happens in this scenario? 

You carry forward £2,000 loss and all the finance charges.