Renovation Expenses

Hi Martin

If you are decorating or generally replacing old for new (e.g. bathroom, kitchen etc.) then you may treat these items as maintenance expenses.

However, if you change the fabric of the building (e.g. extending it) then the costs would need to be capitalised.

Either way you should take professional advice from an accountant who is experienced in dealing with landlords and developers. It may well be that you are unable to utilise all of your expenses in the first year and on that basis you ought to carry forward any unused losses to offset rental profits in later years.

At face value the taxation of rental properties can appear very straight forward but, in my experience, more often that not it is far from simple.

Here's a link to the Property118 member profile of the accountant I take advice from >> http://www.property118.com/member/?id=452
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Hi Mark
thanks for that - I have been looking through some of the archived discussions and it does seem very open to interpretation.
I will definitely take further advice and may even talk to hmrc in regards a 'hypothetical situation'
I look forward to others experience and advice as well
Martin

Martin,
As already said do take professional advice from an accountant experienced in property however if, as you suggest, the property was not habitable when you purchased it then all of the work done to make it habitable would probably be seen a improvements and the cost would therefore need to be capitalised. You would need to come up with a justifiable argument as to what part of the work was improvements and what was replacements.

Be careful with things like kitchens though. If you go from a three unit with sink kitchen to one with 15 units and all built in appliances you will generally need to apportion part to replacement and part to improvement. It is complicated but I wouldn't bother asking the revenue. On the off chance they give you the correct advice it will certainly bias the grey areas towards tax generation.

I seem to remember something like if you already have a buy to let up and running then yes. But if its your first and not let before the works done then no.

Martin,
Get a good accountant. There are guides and books which the public cannot access. My understanding is that if you bought a dilapidated house which required renovation then probably all the cost, in HMRC's view, will be capital. And it would be for you to prove otherwise. HMRC will argue that you bought it at a low price because it needed capital expenditure work. But I am not a tax accountant.

I did the same about 15 years ago and my accountant told me it could be offset against CGT if I ever sold it but couldn't be used against tax from rentals.

You state ".... we have fully renovated...."

Renovation is not maintenance or repair and therefore is clearly capital expenditure. Even more importantly, it was done prior to letting.....

R

Reply to the comment left by "r01 " at "09/12/2014 - 15:17":

Prior to letting does not matter.

It is the fact that it was necessary to make the property livable that makes it a capital expense.

The HMRC view will be that the price paid for the proiperty reflected the fact that it was not livable, and the expense is therefore capital.

An accountant may be able to justify some of the expense as revenue.

Don't only think about offsetting the maintenance Maybe there is something else you can think about. If you have rental business and you want to offset your mortgage interest payments (as that is part of that business, the question is "when can you offset your mortgage interest payments". ie, can you offset when you are renovating (even though it is not ready for letting?), BUT your overall rental business is years old. OR is it when the property itself is ready for letting? This would mean that if it took you 6 months to do the renovation, in that 6 months can you offset the interest payments??

Reply to the comment left by "AA Properties Wales " at "09/12/2014 - 23:01":

If you are already running a letting business, then an allowable expense for a new property should be claimed on the day it became due.

If it is the first property, then any expense that would be an allowable expense once the first letting has been made AND was incurred less than 7 years befor the first letting is an allowable expense and should be claimed on the day of the first letting.

See PIM2505.