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  • Tax

    Income or CapEx expense advice please

    I'm trying to sort out our accounts for last year in preparation for submission.  The survey on the property we bought last year stated:

    "The kitchen and bathroom floors are considered to be damp requiring a new damp proof membrane, you are advised to obtain a quotation from a damp treatment contractor."  We dug up the floors and they were soaking but obviously to do this we had to strip out the kitchen and bathroom completely.  We replaced the 15 wooden kitchen units with 15 white slab units and the 3 piece bathroom suite with another 3 piece suite (ie nearest modern equivalent).  

    Due to the fact that we had to remove the kitchen and bathroom to deal with the damp, can I put the replacements down as income expenses or will they have to be CapEx?  TIA.

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    If you replaced what was there in the Kitchen ie 10 units removed and replaced with 10 units its expenditure

    If you redesigned the Kitchen and provided more than was there its capital

    so depending what you have done it could be a bit of both


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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.

    The floor is a repair, the kitchen is also a repair as it's incidental expenditure incurred necessarily due to the floor.
    If the kitchen units are more more than previously present put a percentage of the total kitchen cost as an improvement, the rest as repair based on some sensible criteria (no of units).
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    being devils advocate, you could have re-used the units and appliances etc.

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    Hi Joe,

    I would have loved to re-used the kitchen cabinets as it would have saved us a fair whack of cash, however, they were 30 year old wooden units splattered in bright fushia pink paint, scratches, dents and dings - not very appealing to our target market of young families! 

    However, we did get them off in one piece and I gave them away to a young couple who were just starting out.  I also gave away the damaged room doors & handles!  I did keep the 3 appliances that were left, the oven, hob and the washing machine however, the hob failed its gas safety cert so we had to buy a new one. 

    It cost almost as much to pay for the failed cert and then the actual cert as it did to buy the new hob so that was a false economy. (Plus the cost of the hob and paying for it to be installed, and the trip to the dump for the dead hob).  I won't gross you out with the details of the bathroom!

    Heather.

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    thats really my point.  you could have put back the old, but decided against it.

    im not an accountant but seems to me it may be capital as a new kitchen wasnt essential to make the house suitable for renting, a 30 yrs old kitchen would devalue the house and the floor repair could have been done reinstating the old units (albeit not sensible).

    be interested wot the experts say.

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    Joe,

    The units were damaged with missing doors so I couldn't put them back as there was no way to match them. Perhaps you could argue that I could have changed all the doors and repaired the carcasses, cleaned the paint/grime off them but that would have been more expensive than replacing the whole kitchen.  No one would rent a fully refurbished house with an 1980s/90s kitchen, unless it was someone desperate, but then our mortgage prohibits LHA tenants and I wouldn't be able to get RGI and our ROI would be in the (new) toilet!

    This is the reply I got from our accountants:

    This is potentially more complex as I think you are saying that these were essential repairs to a newly acquired property? In this situation, if the price paid for the property was reduced because it was in a derelict or run down state, then the cost in repairing it into a fit use for letting is considered capital.

    If you don’t consider the above to be applicable then the usual revenue / capital rules apply. If the repairs resulted in a kitchen and / or bathroom with a higher specification than what was there previously, then these would be regarded as an improvement and capital. If the kitchen and / or bathroom were replaced with the nearest modern day equivalent as you said was the case, then this will be regarded as a repair and therefore offset to the rental profit.


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