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Hi I have just bought my first BTL property and have improved it and now about to let it out, I have some queries regarding allowable expenses for tax The house was previously lived in before so was in a let-able condition however i wanted to improve it before i did, Ive been reading that expenses that improve the property are capital expenses however in certain areas i have just replaced what was there before, for example: Replaced old kitchen with a new one (same layout)replaced old wall tiles with new ones in the kitchennew bathroom suit and replaced wall tiles in bathroomReplaced front door with same style/material (uPVC)Removed wall paper, re wired and replastered the houseRepainted all walls/ceilingsReplaced existing electrical components (switches sockets etc)Gas Safe CertElec Safe Cert Also what about the business milage allowance...travelling to and from the house while renovating, travelling the wholesalers etc.. Are any of these classed as repairs/allowable expenses that i could put down on my first year books or are they all capital expenses. Ive looked in several places but i believe some of it is open to interpretation. If someone could offer any kind of advice or point me in the right direction it would be greatly appreciated Thanks
Our Accountant has understood the rules to be if you are replacing like for like then it is a expense reclaimable in the year. If it is an improvement it is a capital expense so claimable when you sell.
A Kitchen with 10 mid priced units, replaced by 10 mid priced units is therefore a claimable expense not a capital one.
She said if you do it by the rulebook and replace a 10 unit kitchen with a 14 unit kitchen of similar quality the law is understood to mean that you claim 10 of those as an expense and 4 as a capital expense - but then who will know how many there were in the first place.
But it will depend on your Accountant so choose them wisely as with the right advice they will save you a fortune!!
To me, everything on the list above is a reclaimable annual expense but I'm not your Accountant
My advice would be always take photos before you rip anything out, even of that old kitchen lino, as at least you have something to reference should you be asked.
Pragmatically - also worth noting that if you are a 20% taxpayer you get that as profit offset against tax- whereas on sale you get 28% CGT offset for anything that is clearly Capital Expenditure ie improvements.
The 8% difference is of course small.
OP seems to be saying that he bought a property to live in - which he then refurbed with a view to rental.
That suggests that the only rent offsets will be future refurbs/repairs - as there is currently no tenancy in existence.
There is some anti-avoidance legislation which you have spotted. If person A bought a wreck did it up and person B the equivalent already done up, one would expect the financial position to be the same. The tax rules about buying property and doing them up is to create this equal playing field. It works by assessing whether a property is lettable. In your case you have indicated that it was and so this legislation does not apply and it is down to straight forward capital (CGT matter) or revenue (income tax).
So the colloquial view is an improvement is capital. But there was a landmark tax case involving double glazing where technical obsolescence was ignored. HMRC needs to be fair and reasonable. If you have a very small kitchen and you suddenly move to a very large kitchen then clearly that would be a capital improvement. However where it broadly functions as before then it is still a similar kitchen and so eligible for income tax treatment. Put in this way what is the difference between replacing 6 side of a kitchen cabinet and replacing the entire carcass. The difference should be nil. The first is clearly a series of replacements. The latter a short cut to the same answer. Tax works on intention so if you intend to have a very different result then you more likely to trigger capital treatment that revenue treatment. The like for like reference is a good one but you do not need to be too hung on the precise comparison - just be fair and reasonable.
I consider all your items to be revenue which if you are a higher rate tax payer gives you a better deduction.
If you need any help please get in touch - 0203 907 7022
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Is it not the case that 80% of private landlords are 20% taxpayers?
You may be right. I am surprised though as s24 seems such a big issue. I suspect a lot of landlords have not declared their income and so they may be 20% tax payers but should they be?
Thanks for all the replies, sorry only just getting back to you.
Thats how i understood it that i could claim them as an expense as no "improvement" was made, I was just hoping to get some clarification of more experienced landlords that might have done this before.
" Replaced old kitchen with a new one (same layout)replaced old wall tiles with new ones in the kitchennew bathroom suit and replaced wall tiles in bathroomReplaced front door with same style/material (uPVC)Removed wall paper, re wired and replastered the houseRepainted all walls/ceilingsReplaced existing electrical components (switches sockets etc)Gas Safe CertElec Safe Cert "
It could be argued that this list, especially the bottom 2 on it are a pre-requisite of letting out a property? If there are before and after pictures of the whole house it wouldn't be difficult to argue that much/all of that was to get the property ready for letting?