UK Landlord Forum / Life

I bought a property in March 2014 for 65K and spent about £15 doing it up (damp treatment/CH/rewiring/Kitchen/floors etc).
In September 2014 I let the property out and the tenant still resides there. Everything is groovy 

So I now need to consider paying tax for my first letting year 2014-2015.

I have 3 questions on tax :

1.  I have receipts from the all the work I had done on the house prior to letting it out, i.e. labour, tools, parts etc (15K worth). I also spent quite a bit on fuel as I was working there most days and drove there and home.  Am I correct in thinking tax relief on getting the property ready to let this not related to paying tax on the first period of letting. 

2. What can I claim tax relief on for the letting, and how do I work out how much of it is relief (e.g. is it just 20% of my incurred costs during the letting period). 

3, Capital gains.  One thing which confuses me a bit is that I understand that if I sell the property I would be liable for the difference between price when bought and price when sold (assuming I did not live at the residence at any time, which I have not).  However, after I had finished spending £15 on the property it was at the same basic level as lots of other identical terraces in the same area which were on sale for aroung £85K.   If I sold today would I be liable for tax on 85K-65K=  20K, even though I have spent that much in my own time, and paid labour, tools, parts.  How do I reconcile my outgoings with the fact the house appears to have increased in value.   If I did not sell for say 10 years, how would I then take account of reciepts I have for all that time; in other words shouldnt I be doing something with my receipts now ?

Many thanks.

As you've pointed out you have to work out what's deductible for capital gains purpose, the rewrite and kitchen and what can be deducted off the income tax element I.e fees involved in letting the property out.

You can't claim for the full cost of tools to do the job, where would that end?  I needed a cat to get there so spent 20k and now  knocking it off my tax bill.

Quote from: Riptide on May 17, 2015, 08:55:34 AM
As you've pointed out you have to work out what's deductible for capital gains purpose, the rewrite and kitchen and what can be deducted off the income tax element I.e fees involved in letting the property out.

You can't claim for the full cost of tools to do the job, where would that end?  I needed a cat to get there so spent 20k and now  knocking it off my tax bill.

Thanks for your answer.

So let's forget tools.

My income for the first year is 7 months (Sept-Mar) at £450 = £3150

You are saying that all the work where I paid third parties to do jobs to bring the house up to spec for the initial letting (damp work, rewiring, new boiler) and the cost of the kitchen which I fitted myself, can be put forward claiming off the first years' rental income tax?   = So say this comes to 10K, How does that work. Presumably I cant offset 2K (20% of 10K) off my £3150.  Is there a limit to how much I can offset, and can I continue to offset the rest over a number of years?

As far as captital gains tax goes, at what point, and how, do I indicate that a significant amount of investment (£15K) contributed to an increase in the value of the property?  Do I need to do this now, or just keep my receipts until I sell up, even if that is years away.

Thanks

I'm saying the opposite. A new kitchen is an improvement so a capital expense that would be taken off CGT not income.  Replacing a broken kitchen door would be a repair expense an taken off your income.

http://www.propertyhawk.co.uk/?income-tax

Quote from: Riptide on May 17, 2015, 12:29:46 PM
I'm saying the opposite. A new kitchen is an improvement so a capital expense that would be taken off CGT not income.  Replacing a broken kitchen door would be a repair expense an taken off your income.

http://www.propertyhawk.co.uk/?income-tax

OK Thanks for your patience.  I am getting warmer.

Improvement -> deductable for Capital Gains Tax
Renewal        -> deductable for Income Tax

I see how the kitchen could be argued as being an improvement, but actually the original one was not usable because the cupboards were covered with mould and missing shelves and things.  So not sure which one that comes under.

The addition of a new boiler was really done, yes to improve, but it was a replacement for the existing back boiler which was broken and leaking. This sounds to me again like it could be either improvment or renewal ?  How do I decide

Electrics : This was a new consumer unit, bringing it up to the latest regs which sounds like renewal, but I also had some new circuits added (cooker and other sockets) which seems like improvment ?

The living room floor was damp and we had to have all the floor boards and joists replaced and all the downstairs walls cut back and rerendered with some kind of damp proofing.  That sounds to me like renewal.

Am I getting any closer.

I appreciate your input.

As the link said, some of those fall in the grey area.  You could try them, not get caught get away with it.  Try them get caught and have to repay tax and a penalty I guess.

Get whatever the latest version of this is... http://www.amazon.co.uk/How-Save-Property-Carl-Bayley/dp/1907302751 ...this purchase would be an allowable expense.

It's good to read at night... you're sleeping in no time.

Quote from: Hippogriff on May 17, 2015, 04:19:32 PM
Get whatever the latest version of this is... http://www.amazon.co.uk/How-Save-Property-Carl-Bayley/dp/1907302751 ...this purchase would be an allowable expense.

It's good to read at night... you're sleeping in no time.

Thanks.

I think Vineyard expenses would not be allowable.

Think of it this way your house that you rented out cost £80k ( 65+15) when you drive over to collect the rent, your petrol, some of your car tax, insurance and oil, MOT, depreciation, you can set against Tax this year.

If the boiler brakes down, you can set that against tax, or the insurance to cover this.

Your Broadband and laptop to ask a question about tax, is also, ironically, partly allowable.

HOWEVER, badges of trade rules mean expenses have to wholly and exclusively incurred in the course of trade, so its a bit of a mute point. You cant claim all the costs of these things, unless you never use them for a purpose other than your business.

Quote from: boboff on May 19, 2015, 09:26:05 AM
unless you never use them for a purpose other than your business.

I am going to buy this LINK HERE and use it for inventories, tenancy agreements and PI only so will be exclusively used for my business.  Can I claim it against my tax?

I was given a Mont Blanc pen from work about 10 years ago for something good I once did.

I thought about it the other day... I thought about selling it, actually. I found the box, but not the pen itself... how sad.

Now I'm wondering if the box is worth anything... or whether to keep the box, in the vain hope that the pen will turn-up and be re-united.

Can't imagine I just dumped it, but you never know.

Anyway, the answer to your question is "surely, yes?"

There's a "reasonably" incurred part of that sentence, which this pen would fail the test on.

I have a waterman I was given by my first wife when I was 21, used for 19 years, still now in its box, and a new Waterman which was a present from my Dad for my 40th, which is sat infront of me with my new green ink, which I love!

I love my fountain Pen.

This year I have also reverted to an old school "razor" the ones with "razor Blades" I Love that too.

I am not a person who seeks possessions, but some things just give you a buzz. My wifes love is her Rabbit.

OK (as a quick refresh, 2014-15 is year 1 for rental income so I am getting ready to fill out a tax return).

I have now gone through receipts and have calculated how much should be presented as deductable for each of income tax and CGT.

I have a couple more questions if you would be kind enough, thanks.

Lets say I have 5K of receipts to claim against income tax.  My income tax rate will be 20%. 

So I assume that I can offset my tax bill by 20% of 5K == 1K. Is that right. ?

How is the remaining 4K carried forward, Can I use it next year?  If so how many years can I carry it forward for. ?

I also have a total amount from receipts for improvements (CGT).  When do I use this allowance.  Do I just sit on it until I sell the property, even if that might be years down the line, or do I have to tell the tax man about it this year ?

Thanks guys.

Sort of, your not offsetting your tax bill by 20% of 5K, that is calculated for you. 

You need to input the income figures and input the expenses figures raw.  So £1000 income (for example) would be £200 tax bill but then is swamped by the 5k expenses so no tax due, your business has sustained a 4k loss in the first year.  This loss is carried forward to the following year.  Not sure how long it's carried forward for though.

CGT - from my limited knowledge I think you sit on them until needed.

Quote from: Riptide on June 07, 2015, 12:03:00 PM
Sort of, your not offsetting your tax bill by 20% of 5K, that is calculated for you. 

You need to input the income figures and input the expenses figures raw.  So £1000 income (for example) would be £200 tax bill but then is swamped by the 5k expenses so no tax due, your business has sustained a 4k loss in the first year.  This loss is carried forward to the following year.  Not sure how long it's carried forward for though.

CGT - from my limited knowledge I think you sit on them until needed.

Thanks Riptide. I guess this will all make sense once I start filling in the figures on the online form.  The last time I had to do this..... there was no online 

It is actually quite easy doing it online, it kinda leads you through it... there are questions that I have no clue about, but I just answer 0 as that seems to be default and I've never come a cropper and the amount of tax it tells me to pay is very close to what I'd worked out myself anyway.

The most painful part is all the initial setup... posting real letters around and suchlike! Tax doesn't have to be taxing, but they try their best to make it so.

It is very straight forward.

Put the numbers in the boxes and it works it all out.

They have made MASSIVE improvements to the systems over the years, and its now easier than ever.

You can overthink these things.

Thanks to all. I guess I'd better just get on with it.

I too am doing my first tax return this year...  well I was..

If you use the 'do I need to do a self assessment' questionnaire on the HMRC website, after answering all the questions, it will tell you if you need to do one.  In my situation, due to new showers, dishwashers etc and a flood in the living room (meaning reduced rent for a period) and 2 unoccupied months (who said this landlord lark was fun!!)..

Anyway, I made a loss in the first year, so I rang HMRC (52 minutes later they answered), and they said, that, instead of filling in an online assessment, I could instead write them a letter with a quick breakdown or income v's expenditure arriving at the loss, and that this would be recorded against my name for use next year, when I will make a profit?

So this may also be an option for you, once you've determined your actual profit or loss...    Although I have no idea about your Captial Gains problem...  but the online  questionnaire, did ask something about Capital gains..

Quote from: Swagman on June 08, 2015, 10:36:15 AM
I too am doing my first tax return this year...  well I was..

If you use the 'do I need to do a self assessment' questionnaire on the HMRC website, after answering all the questions, it will tell you if you need to do one.  In my situation, due to new showers, dishwashers etc and a flood in the living room (meaning reduced rent for a period) and 2 unoccupied months (who said this landlord lark was fun!!)..

Anyway, I made a loss in the first year, so I rang HMRC (52 minutes later they answered), and they said, that, instead of filling in an online assessment, I could instead write them a letter with a quick breakdown or income v's expenditure arriving at the loss, and that this would be recorded against my name for use next year, when I will make a profit?

So this may also be an option for you, once you've determined your actual profit or loss...    Although I have no idea about your Captial Gains problem...  but the online  questionnaire, did ask something about Capital gains..

Thank you for the post - very interesting. I may give them a call.

Just as an update to this, I had a very quick return letter from HMRC...  where they said that they agreed with me and that they withdrew the requirement to do an 'online TAX assessment' for this year,

Obviously with some claw back words, to the effect of if it's found your lying your open for fines etc... but I suspect that's standard...

So that's me in the clear regarding 2014/15 tax year,  now hoping I make some profit this year and then can offset the previous loss