Allowable tax expenses on rental property
Discussion
Very briefy I've just bought a 3 bed semi from a family member at around 15% below market rate. My original intention was to simply spruce it up a little and move it on in the hope of making a relatively easy £10k, however I'm aware that in the long term I'll it's probably a better move to retain it and let it (should rent for around £575pcm with a tracker mortgage repayments of £450pcm).
I already let another property which I own outright and take £400pcm from after agents fees. I'm therefore reasonably familiar with doing my accounting and tax returns already, however there're a couple of points I'd like some help on from those with more experience than me.
a) Are the conveyancing costs for the property purchase an allowable expense?
b) I believe the cost of decorating and re-flooring the property before rental are allowable deductions, is that correct?
Any other advice on the benefits of selling it immediately vs renting it are welcome!
I already let another property which I own outright and take £400pcm from after agents fees. I'm therefore reasonably familiar with doing my accounting and tax returns already, however there're a couple of points I'd like some help on from those with more experience than me.
a) Are the conveyancing costs for the property purchase an allowable expense?
b) I believe the cost of decorating and re-flooring the property before rental are allowable deductions, is that correct?
Any other advice on the benefits of selling it immediately vs renting it are welcome!
no effort said:
I'm sure you've done your sums but is it worth the hassle of letting for £125 a month?
That's the big question! In the short term probably not, I've no doubt that over the next few years once a few maintainance bills and income tax are taken into account it'll end up costing me money rather than making it, however the idea is that in the long term I make a the capital gain of someone else paying the mortgage for me and with a bit of luck the house also increasing in value.Again I'd like to hear any opinions on the above!
JWH said:
....in the long term I make a the capital gain of someone else paying the mortgage for me ..
That makes sense to me - someone else is buying you a house.Another angle is that we sold my wife's Godfather's house last year to a guy who snapped it up at asking price for cash. Told us he was going to rent it but the likely rental vs purchase price didn't make a lot of sense. He said he didn't care - he just want his money in safe 'stores'.
My thinking is then if you've bought the property 15% below market price then as long as the property remains in a good state compared to the other properties around it then this margin should be maintained. Then let in out and should you encounter any problems later on you could spruce it up and still sell it for a profit.
I didn't think you could claim expenses until the property was "rented". I'm not sure anyone would ever check though. In fact you could claim them against the other property, who will know just make sure their's no address on any paperwork.
I didn't think you could claim expenses until the property was "rented". I'm not sure anyone would ever check though. In fact you could claim them against the other property, who will know just make sure their's no address on any paperwork.
Yes, you can claim expenses incurred in getting the property ready for rental.
The only restriction is the differentiation between Capital Costs and Revenue Costs. If expenditure is large or substantial enough to be constituted as "Capital", then those costs canot be offset against rental income but will be added to the basic cost price of the property for Capital Gains purposes - so ultimately tax relief will be obtained.
Drawing a clear distinction between costs of a capital nature and ordinary repairs and mainntenace costs is not always clear cut.
Claiming costs on one property against another property isn't al;lowed and constitutes fraud.
However, if one rental property generates a loss and the other a profit, then the loss from one can be offset against the profit of the other in the same tax year - thereby reducing the overall taxable amoumnt of rental profits.
So, no need to pretend a cost incurred on one property was for the other.
The only restriction is the differentiation between Capital Costs and Revenue Costs. If expenditure is large or substantial enough to be constituted as "Capital", then those costs canot be offset against rental income but will be added to the basic cost price of the property for Capital Gains purposes - so ultimately tax relief will be obtained.
Drawing a clear distinction between costs of a capital nature and ordinary repairs and mainntenace costs is not always clear cut.
Claiming costs on one property against another property isn't al;lowed and constitutes fraud.
However, if one rental property generates a loss and the other a profit, then the loss from one can be offset against the profit of the other in the same tax year - thereby reducing the overall taxable amoumnt of rental profits.
So, no need to pretend a cost incurred on one property was for the other.
There is case law precedent about tax deductions for pre-trading improvement expenditure - very difficult to obtain deduction.
If you are doing your own returns, you could chance it, but I wouldn't allow a claim by one of my clients at the outset - it would be an allowable costs when computing any future CGT liability though.
However, if you can wait a year, then the situation is somewhat more posotive regarding deduction.
David
If you are doing your own returns, you could chance it, but I wouldn't allow a claim by one of my clients at the outset - it would be an allowable costs when computing any future CGT liability though.
However, if you can wait a year, then the situation is somewhat more posotive regarding deduction.
David
Gassing Station | Finance | Top of Page | What's New | My Stuff