Rental property - money from deposit and tax return

[davek_964]

Until mid April 2025, my property was let by a management agency. Last rent payment was March 2025, so was all included in the tax return for 24/25.

From mid April 2025, my step daughter has lived there - hence, no rent and no need to put rental income on my tax return this coming April. Except........

For various reasons, I have just received a payment from the deposit for damage to the property. It is a small amount (about £150) but I assume that I need to declare that on the tax return. My question is regarding other costs:

Once my stepdaughter moved in, it became clear that it was very difficult to switch the shower off - and it had very little power anyway. It was an Aqualisa, and it had been there many years - so I decided to replace it like for like at a cost of ~£1,000.

Since the property is not generating rental income this financial year, I figured I'd have to absorb that cost myself. However - now that I have to declare a very small amount of rental income, can I also claim the cost of the shower as an expense, even though there is no rent being paid each month? Or is that a step too far?
If I can't, it seems a bit unreasonable that 40% of the money it took to repair my property will go to the tax man, leaving me out of pocket.

(I know I can deduct the costs of repairing the other things but the same principle applies to those since I'm not receiving rent each month. And if I can claim for them, why not the shower?)

Edited by davek_964 on Tuesday 10th March 13:06

[Hawkshaw]

You only pay tax on the profit, if any. That is, the difference between income and expenditure.

Repair costs are an item of expenditure.

If you have spent £1000 in total on the property, and the income is £150, then you have made a loss of £850.

Or have I missed something?

[davek_964]

Hawkshaw said:

You only pay tax on the profit, if any. That is, the difference between income and expenditure.

Repair costs are an item of expenditure.

If you have spent £1000 in total on the property, and the income is £150, then you have made a loss of £850.

Or have I missed something?

Yes, I know that.

But this is a year when I'm not generating rental income. Now that I've been paid the money from the deposit, I obviously do have some - but it seems a bit "off" to deduct significant expenses (enough to generate a loss) when I'm claiming that there is £0 rent each month.

I'm essentially claiming expenses on my rental property while saying I don't receive any rent (which is true)

[alscar]

I assume some repairs fall into the category of capital expense which I think becomes more of a CGT offset when you come to sell.
That said even if your current repair doesn’t qualify against nil income presumably you could carry the cost forward for when you are renting again ?

[davek_964]

alscar said:

I assume some repairs fall into the category of capital expense which I think becomes more of a CGT offset when you come to sell.
That said even if your current repair doesn t qualify against nil income presumably you could carry the cost forward for when you are renting again ?

Yes, that might work. Which will probably be the next FY (26/27) if they're successful in finding a property to buy.

[alscar]

davek_964 said:

alscar said:

I assume some repairs fall into the category of capital expense which I think becomes more of a CGT offset when you come to sell.
That said even if your current repair doesn t qualify against nil income presumably you could carry the cost forward for when you are renting again ?

Yes, that might work. Which will probably be the next FY (26/27) if they're successful in finding a property to buy.

I suppose too if you were that “ bothered “ you could always charge a so called peppercorn rent for both tax years ?
CGT losses too if you have them from other sources can also be carried forward against future profit virtually indefinitely until they are used up.

[davek_964]

alscar said:

I suppose too if you were that bothered you could always charge a so called peppercorn rent for both tax years ?

That already happens. There is a tenancy agreement in place with an annual rent of £1.

[boyse7en]

Similar-ish situation here.

We had to have a new roof (slates, battens, felt, some joist repairs...) last year which cost around £12k. Our annual profit from the house is around £8k, so effectively we will pay no tax on 2025-26 tax year, and also claim around £4k off of the 2026-27 tax year too.
So the fact that your expenditure outweighed income shouldn't be a problem when you come to fill in your Self Assessment forms. Rent goes in as £151, then you have expenditure of shower, insurance, fees etc which you can carry across against profits in future years

[Hawkshaw]

davek_964 said:

Yes, I know that.

But this is a year when I'm not generating rental income. Now that I've been paid the money from the deposit, I obviously do have some - but it seems a bit "off" to deduct significant expenses (enough to generate a loss) when I'm claiming that there is £0 rent each month.

I'm essentially claiming expenses on my rental property while saying I don't receive any rent (which is true)

But why is that a problem? Property could be empty for any number of legitimate reasons and there would be ongoing expenses: insurance, utilities and council tax for example. These are reasonable expenses and you would have to be making a massive loss, probably for several years, before the taxman queried it. Not worth losing sleep over.

[davek_964]

Interesting. It's never occurred to me that I could claim the household bills as expenses during the empty periods.

[LooneyTunes]

If your step daughter is living in it rent free (or even at a peppercorn rent) are you sure that ANY costs are claimable?

It certainly wouldn’t seem to meet the “business” tests if subject to them?

[davek_964]

LooneyTunes said:

If your step daughter is living in it rent free (or even at a peppercorn rent) are you sure that ANY costs are claimable?

It certainly wouldn t seem to meet the business tests if subject to them?

No - I'm not sure at all - that's why I asked. But because of how it fell over the new financial year, that means I've been paid for repairs this financial year - which means it will be taxed - but I can't claim for the repairs I had to make (or anything else).

Which seems a bit unfair.

[LooneyTunes]

davek_964 said:

LooneyTunes said:

If your step daughter is living in it rent free (or even at a peppercorn rent) are you sure that ANY costs are claimable?

It certainly wouldn t seem to meet the business tests if subject to them?

No - I'm not sure at all - that's why I asked. But because of how it fell over the new financial year, that means I've been paid for repairs this financial year - which means it will be taxed - but I can't claim for the repairs I had to make (or anything else).

Which seems a bit unfair.

Looking at it from a different perspective, what you’re wanting to do is claim for work on what is now essentially (and perhaps temporarily) an ex-rental property / second home.

Personally I think you risk opening a can of worms with HMRC. A small risk, admittedly, but a tax investigation is never fun.

It might be different if someone was living in as a caretaker whilst you genuinely and demonstrably sought a tenant at market rate but at present there doesn’t seem to be any intention to make a profit.

[davek_964]

No, there isn't an intention of making a profit.

But the money I've just been paid was for repairs I needed to make due to damage by the tenant. Which I did, and which cost me money. So even if we ignore the shower, it seems a bit unreasonable that it costs my £x to repair the property, I'm paid £x from the deposit - but I have to give 40% of that to HMRC and can't claim the actual cost of repairs.

Still, it's a small amount of money so perhaps that's exactly what I'll do. It seems the least risk.