Shocked Chancellor orders landlord tax scrutiny

Mark there is a good reason why I don't know that rental losses can be carried forward ......... hahahahahaha

I would really like to hear what the author has to say about claiming set up costs.

I read this When work is carried out to an existing or newly acquired property which results in the asset being altered, improved or upgraded - that is makes it better than it had been before, then such costs are normally capital and should be disallowed in computing the rental profit or loss for tax purposes. This is here in this useful guide from HMRChttp://www.hmrc.gov.uk/agents/toolkits/property-rental.pdfIt goes on to complicate the statement made above and I cannot get my head around it but my accountant has always put set up costs against capital
When work is carried out to an existing or newly acquired property which results in the asset being altered, improved or upgraded - that is makes it better than it had been before, then such costs are normally capital and should be disallowed in computing the rental profit or loss for tax purposes.

This is here in this useful guide from HMRC

http://www.hmrc.gov.uk/agents/toolkits/property-rental.pdf

It goes on to complicate the statement made above and I cannot get my head around it but my accountant has always put set up costs against capital

ARTICLE AUTHORS REPLY - note that the author wishes to remain anonymous for personal reasons - clues to identity in previous post have been removed.
Section 57 Income Tax (Trading & Other Income) Act 2005Pre trading expensesAny money spent for the letting business goes in to the accounts on the first day of letting the first property as if it was spent on that day, providing:> The expense was incurred no more than seven years before the first letting date> The expense has not already been claimed against tax> The landlord would have been able to claim the expense if the letting business was trading when the expense was incurredSubsequent expenses are entered in to the accounts on the dates they were incurred.This section specifically relates to day-to-day spending (revenue costs) and not one off improvements (capital costs) - for instance repairing the roof is OK to claim, but adding a new loft room is not.

The author's reply reflects my understanding of the tax law. Costs incurred  before or after acquiring a property are treated in the same way except that those incurred before the first year of trading should be included in the accounts for that first year. The same decision needs to be made for each cost as to whether it's a capital cost or maintenance. If I had to redecorate or replace a kitchen and/or bathroom when a tenant moved out that would be maintenance. So doing these before renting is equally just maintenance and therefore tax-deductable.

That has been my understanding, on reading IR150 and it's web-successor "PIM" at http://www.hmrc.gov.uk/manuals/pimmanual/index.htm.

However, replacing a kitchen or bathroom before first letting a property, rather than cleaning and decorating, would suggest that the property was not fit for letting and therefore the expense is likely to be capital.
Similarly, replacing kitchen or bathroom between tenants is likely to be capital unless it was trashed by th eprevious tenant.  Even then it has to be a one-for-one replacement with items of similar quality; any additional items (eg changes to electrical outlets, additional cupboards, better quality items) introduces an element of improvement, and therefore a proportion is capital expense.

Mary,  I am a sole trader. I own 36 properties in my name. In my first few years, I racked up about £70,000 in losses, these kept rolling up, and then when my property business became profitable, these previous losses were offset aginst my current profits.

replacing kitchens and bathrooms is normally regarded as ongoing maintenance, unless they are  significantly better/ bigger than the old one. I have done this several times and always offset against rental income ( via my accountants ). I dont think that in the real world anyone would worry about adding an extra socket or changing the wall tiles. I have done this mostly before letting ( being more practical, usually ).

A must read is ‘How to avoid property tax’ by TAX CAFE and
the author is Carl Bayley.  This book
will answer all your questions.

He Lee

Another good one is "Understanding and paying less property tax for dummies" by Steve Sims.

See http://www.amazon.co.uk/Understanding-Paying-Less-Property-Dummies/dp/0470758724

Let's not forget the terms of the lease in all this!

This is very boarder line, as if a “new” property is not a state it can be rented out, then getting into that state is a capital item.   But doing “repair” sooner rather than later is a revenue item.

The advice I got was that I could not put the new kitchen or carpets as revenue as there were getting the property into the correct state to be able to reasonability let it to anyone apart from a “no hoper”.  I think the answer comes done to your choose of accountant and has not been well tested by the legal process yet.