UK Landlord Forum / Life

Hello all,

I'm looking for tax advice (as a novice learning and I don't have an accountant) coming to the end of year 12 months of the let.

I have a property currently rented on 3 AST's totaling £850 pcm.

I pay monthly £250 in interest only mortgage payments.

Other expenses this year include:

furnishings for bedrooms (beds, wardrobes, shelves etc)
white goods (fridge and washer)
New Back door
New Front window
Repainting and cosmetic decoration
Replacement of electric shower

I'm aware that interest only is counted as an expense that can be put down.

The other expenses I made, all but one where during the tenancy (the shower).  The rest I completed in the first week of acquiring the property to bring it up to standard.

Can I claim for these as expenses similar to the interest only payments?

Income

£10,200 (rent)

expenses

£3000

£120

£2000 (redecoration's and furniture) 


£5080  <<<<<<<<<<I'm assuming I pay tax on this figure??

Hello Soley13,

I'll assume this is an additional personal income on top of job or pension, so that you are actually due to pay income tax on your net earnings this year.

Interest should be tax deductible as long as the amount of the mortgage does not exceed the market value of the property at the time the loan was taken out.  Very few do.

It depends on how you "acquired" the property as to how you can claim the stuff you did before your first tenant moved in.  It looks like you bought it specifically to BTL (seeing how you have a mortgage on it).  So you can count these as capital expenditure and offset the costs upon any realised Capital gain upon sale.

The things you did during the first tenancy (and thereafter until any time you might decide to reside in the property) can count as maintenance and repairs and can be offset against your property revenue.

Please note it is offset aginst your property revenue and not against your genreal income earnings.  So if you had a really bad year, like a few void periods and a trashed house you had to put a new kitchen into and you ran at a loss, your property net revenue would be negative.  You would carry a property revenue tax credit forward to the next tax year, but you'd be assesed on your earned income without reference to your property losses.

Tax is complicated and one of the best things I ever did was get a friend to recommend an accountant to me.  Yes, they cost, but each year mine finds a couple of tweaks which means he saves his bill by reducing my tax liability I would not have a hope in hell of working out, so effectively he is free to use!

Lastly, I'm a bit worried for you.  The deadline for self assesment on line returns was end of Jan for tax year Apr 2010 to Apr 2011.  If you're just coming to the end of a twelve month tenancy then this started in Feb 2011 and you should have declared your up-front expenses and first couple of months income by the beginning of the month.  The HMRC charge you for late filing and seeing how you're new to all this, I'd go and speak to a recommended accountant promptly.  Where to do you live?  I'd happily recommend mine if, by co-incidence, you're local to me.

Hope this helps, please let me know how you got on.

Jeremy I agree with your accountant comments, a good accountant is worth their weight in gold.

This was a dilemma I faced when I first started renting, and I believe is a common issue. However after I lot of research and speaking to a few accountants, I believe I have the right answer.

The problem is there is a very fine line against what is deductible from rental profit and what is deductible against capital gains. I agree with Jeremy stating anything during the first tenancy and after is tax deductible against rental HOWEVER some of the refurb costs prior to first left are also allowable expenses against rent.

It comes down to repairs (revenue costs) vs improvements (capital costs). Painting and decorating, replacing windows, doors, etc are seen as repairs/replacements which are therefore treated as 'revenue costs', even if this is before officially letting out. Capital costs are any major improvements to the building such as conversions or new additions to the property such as brand new appliances that are not replacements for broken ones, etc.

If the house/flat is in very poor condition and needs a lot of work doing, this is then classed as a capital cost because you are IMPROVING the building. If a house/flat was in this condition, this would normally be reflected in the purchase price or picked up in the lenders valuation.

Another thing, lets say for example you didn't decorate, but decorated whilst the tenant was in situ, we all know we can deduct these costs against rent. So doing this a few weeks before tenant moves in is based on the same principle.