Allowable Expenses - how far back

[hithrog]

Hi everyone.

Just become a landlord for the first time. We've let our family home out via a letting agent and moved to live in a rented house nearer work.

I understand that for tax purposes we can offset the cost of any repairs / decoration, but I don't know how far back that can go. Effectively, we have been considering letting the property for the last two years - can I claim back that far for repairs/decorations?

Another question, if I may: The IR says that we must be able to separate our rental income from our personal finances (understandably). Does that mean we ahve to have a separate bank account, or can this "separation" just be done at an accounting level - its much easier for us to just have our rental income coming in to our joint account so we can pay the mortgage with it !!

Thanks in advance for any replies ...

Jon Duffy

[susanm]

Hi Jon,

So long as the expenditure is normal trading expenditure, you can claim for expenses incurred within the 7 years prior to the trade having started. Please bear in mind that allowable expenditure does NOT include repairs to the property which were required before it could be brought into use - this sounds unlikely in your case but it is always worth mentioning!

You do not have to have a separate bank account for your rental income and expenditure, simply make sure you keep good records & receipts of all your expenses. To make life easier, it may be an idea to quickly go through your bank statements each month & identify the income & expenditure which relates to your property income. At the end of the tax year, this will mean that you should be able to easily find & account for all expenses and transfer these to your tax return form.

Hope this helps!
Susan
E:susanamason@aol.com
W: www.worsleytaxationservices.com

[hithrog]

Hi Susan,

That's great - thanks for the advice!

Jon

[King_Maker]

The 7 year rule does not apply when it was your home.

Only the interest element of the mortgage is claimable.

A separate business bank account is preferable.

[Telometer]

Hi Jon,

So long as the expenditure is normal trading expenditure, you can claim for expenses incurred within the 7 years prior to the trade having started. Please bear in mind that allowable expenditure does NOT include repairs to the property which were required before it could be brought into use - this sounds unlikely in your case but it is always worth mentioning!


The 7 year rule does not apply when it was your home.

Lots of inaccuracies in the above. Firstly, there is no trade. There is a rental business.

The 7 year rule DOES apply when it was your home. However, it is unlikely that any/much expenditure prior to letting out was wholly and exclusively in respect of your rental business.

I suppose that if you had your house painted in shocking pink, and you painted it magnolia for the purposes of letting it out, then that would probably be tax deductible provided the pink decor was in reasonable state.

Anyway, in answer to your question, it is unlikely that you have any relevant expenditure as most of the expenditure will be capital. Worth keeping a note of it in case there is any CGT due when you sell your house.

[King_Maker]

The 7 year rule DOES apply when it was your home. However, it is unlikely that any/much expenditure prior to letting out was wholly and exclusively in respect of your rental business.



Name one deductible item which would apply while the property is being used as a home.

[Telometer]

The principle remains the same; it is possible to claim for any item of expenditure incurred wholly and exclusively for the letting business in the seven years prior to first let.

The fact that it is unlikely that any/much expenditure falls to be W&E for the purposes of the letting business does not impact the tax principle.

There is quite probably a very good argument for the magnolia-from-shocking-pink redecoration as there is no element of improvement - save for aesthetic(!)


Name one deductible item which would apply while the property is being used as a home.


What about costs of arranging loan finance, capitalised and amortised over the life of the loan?

[King_Maker]

What about costs of arranging loan finance, capitalised and amortised over the life of the loan?

No, they would not be allowable while the property was being used as a home.

Do you consider the associated interest to be allowable too?

[Telometer]

No, they would not be allowable while the property was being used as a home.

Of course they would not. What a ridiculous assertion that would be, and not one I have made.


HOWEVER, the EXPENDITURE was incurred whilst the property was used as a home, and the relevant amortisation of the cost is allowable where it relates to the time period that the property is subsequently rented.

[King_Maker]

Of course they would not. What a ridiculous assertion that would be, and not one I have made.


HOWEVER, the EXPENDITURE was incurred whilst the property was used as a home, and the relevant amortisation of the cost is allowable where it relates to the time period that the property is subsequently rented.

Just as well, as you would have been wrong on that point too.

[Telometer]

You're the one who asserted that the 7-year rule did not apply if it had been your home. I have not been wrong on anything in this thread; you have.

In the special world of the Kingmaker, s272(2) ITTOIA 2005 - applying s57 ITTOIA 2005 does not apply under such circumstances.

Fortunately, for the rest of us it does.