Completing 2008/2009 return with no rental income

[budgie13]

Hello

We bought a BTL property in March 2009 and incurred a combination of capital costs and allowable expenses. However, due to a number of problems, both with letting agents and a leaking soil stack, our first tenancy will not start until 4th November 2009.

I've downloaded the SA105 2009 and the appropriate notes and understand how to arrive at the figure for boxes 39 and 41 to carry forward this loss to 2009/2010 to offset against our rental income.

But I've also read PIM2505 and understand that the 'business can't begin until the first property is let'. However, this document also says 'Qualifying pre-commencement expenditure is treated as incurred on the day on which the taxpayer first carries out their rental business. This is deducted, together with other allowable expenses of letting, from the total receipts of the business for that year.'

Reading that suggests that I need to forget about my allowable expenses for the year 2008/09 (interest on mortgage, council tax, electricity, ground rent etc) and carrying them forward as losses and instead take it off the income in 2009/2010.

So, my question is ..... Do I need to ignore the carried forward losses section on SA105 and instead complete my 2009/2010 accounts with all the qualifying pre-commencement expenditure rolled into one lump which is incurred on 4th November 2009?

Thanks for any help offered.

[Telometer]

So my answer is.... Yes, that is completely correct.


Have you managed to identify all your capital expenses correctly?

[budgie13]

Thanks for the information.

Ooh, that's a good question!

I have read several books on BTL and also the guidance on the HMRC website.

In capital we (currently) have:

legal costs to purchase property
improvements to the property (including repairs prior to letting)


The repairs from the damaged soil pipe were all paid for on an insurance claim against the buildings insurance so we had no costs other than the minimal electricity for the dehumidifier to dry out the sodden floor.

In expenses we (currently) have:

Interest on mortgage
Ground rent
Service charge for maintenance of communal areas, building insurance and sinking fund for roof
Council tax (council refuse to allow any free or reduced period)
Life insurance on mortgage (as per BIM45525) as the term is tied to the mortgage
EPC cost
Electrical safety testing and certificate
Mortgage arrangement fee (as per PIM2066)
Electricity on empty property
Water bill on empty property (have now changed to meter)
Letting agents fees on monthly basis
Rent insurance guarantee fee
Referencing fees (for tenant)
Inventory fees
Advertising fees for property to find tenants
Some mileage to and from property: when the soil pipe failed and the leak came through the roof of the flat below, to show round different agents, to handover keys and this coming weekend to remove the furnishings that the tenant does not want


I'm hoping I haven't missed anything!

Thanks again for your help :)

[Telometer]

Mortgage arrangement fee (as per PIM2066)

Deductible on an accruals basis over the life of the mortgage. So if it was £250 and the mortgage 25 years, you get £10 per annum for each of the 25 years.

The mortgage valuation/survey is similarly deductible provided it was for the purposes of arranging the loan finance, rather than because you wanted a survey. If it was because you wanted a survey - or if you paid for a full survey rather than just a valuation, then it is capital.


mileage

Certainly once you have appointed an agent, the place of business becomes his office, not your house. Accordingly only mileage (at 40p per mile - or actual if you can be bothered to work it out) from the agent's office is deductible.

Mileage prior to appointing an agent may well be capital. Mileage in appointing an agent I guess is deductible. If your mileage is incurred for some other purpose, and dropping in on the property is incidental then the mileage is not deductible.

[budgie13]

Thanks for the advice (again).

Yes, we had to travel to the property to do the work (previously a repossession) and then to appoint the first agent, then changeover to the second agent, go to do the emergency work and then changeover to the third agent.

I've read the guidance on wholly allowable expenses and understand that stopping on the way back to buy a paper is allowable but popping to see your mother-in-law is not!