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  • Tax

    Property Maintenance costs

    I have heard that maintenance costs which hitherto were allowed in full against property income for tax purposes is to be restricted to just £5000? If this is the case is this restriction to be phased over 4 years? I am at present involved in an expensive refurbishment where the flat was trashed!

    Any advice will be appreciated

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    This is news to me, where did you see this?

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    I would like to know the reference of where the £5,000 limit is too please?


    Allowable costs you can offset against your rental income

    The following types of costs may be offset against your property income to help you reduce your tax. This list is not complete but it gives you an idea of what costs may be allowable.

    Buying a property

    • Repairs: exterior and interior painting, damp treatment, stone cleaning, roof repairs, furniture repairs
    • Mortgage arrangement costs
    • Legal fees associated with the loan, so legal fees related to mortgage financing of the property

    Other costs that you incur when buying a property such as conveyancing fees for the purchase, finder’s fees, the actual purchase of the property, stamp duty and surveys are capital costs. You can’t offset capital costs against your annual rental accounts, but you can offset them against any capital gain when you eventually come to sell the property.

    Refurbishment of the property

    One of the strategies that I’ve talked about in a previous article is still very much relevant today. By using this strategy you not only minimise your property profits but you could build up losses for the future. This means that you will not pay tax on your property profits in the future as long as those losses exist.

    The types of costs that may be offset against your income here are:

    • Repairs: When carrying out repairs to broken units, roof tiles, furniture, plasterwork
    • Renewals: Such as repainting your property, cleaning costs
    • Replacement: For example, kitchen units, bathroom units, heating systems (boilers and radiators), lighting systems (including fuse boxes), carpets, curtains, fridges, freezers, TVs, beds, furniture (if all were in place at the time of purchase)

    HMRC had previously stopped people from claiming soft furnishings and freestanding units because it allowed the 10% wear and tear allowance, but since it has removed this allowance, if, for example, carpets and curtains that were already in the property need replacing then the replacement costs would be allowed.

    If you wanted to play it extra safe then I would suggest that you ask the sellers of any property you are buying to itemise the following on the sales documents:

    • Value of the land and building
    • Value of the kitchen
    • Value of bathrooms
    • Value of white goods (if supplied as a rental)

    This can then be used as evidence that there were assets in the property and will support the fact that you are replacing/repairing those assets, which means they can justifiably be offset against your tax. I would stress that you should not put in a kitchen costing £3,000 if the value in the sale documents only shows £1,000 as this will certainly be seen as an improvement and will be considered a capital expense.

    This works very well with properties that are in a lettable state but are very tired. As such you can justify to HMRC that the refurbishment costs will help you to increase the rental income of the property.

    HMRC guidance can be confusing on this issue, but on the issue of repairs it states:

    “If your roof is damaged and you replace the damaged area, your expenditure is allowable.

    “Even if the repairs are substantial, that does not of itself make them capital for tax purposes, provided the character of the asset remains unchanged. For example, if a fitted kitchen is refurbished, the type of work carried out might include the stripping out and replacement of base units, wall units, sink etc., re-tiling, work top replacement, repairs to floor coverings and associated re-plastering and re-wiring. Provided the kitchen is replaced with a similar standard kitchen then this is a repair and the expenditure is allowable. If at the same time additional cabinets are fitted, increasing the storage space, or extra equipment is installed, then this element is a capital addition and not allowable (applying whatever apportionment basis is reasonable on the facts).”

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    Simon Misiewicz | Business Development Manager

    Optimise Accountants

    Telephone: 0115 939 4606

    website: http://www.optimiseaccountants.co.uk


    I appreciate what type of expenditure one can claim for ! nIt is the mention by the Tax Expert at a recent NLA meeting when the topic of tax relief on repairs came up?

    The speaker was adamant that the HMRC was to restrict tax relief to just £5000 of expenditure for each tax year. I can only surmise that this restriction would be in connection with each property?

    However it would be useful if anyone else can throw light on this HMRC proposal

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    Do not believe there is any such proposal

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    Well i hope not!

    At least we as landlords can spend the money/rent on repairs to reduce the tax burden!!

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    Indeed!

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA