Landlord Tax Returns
Discussion
Hi all
Does anyone know about landlords tax returns?
I’ve owned a second property for the past year, when I bought it I spent a few thousand on refurbishing before I rented it out, 3 months ago I had the boiler replaced like for like (old one broke).
Now I have had a look on the HMRC website and its not very clear, how do you tell whats capital expenditure and allowable expenses?
Does anyone know about landlords tax returns?
I’ve owned a second property for the past year, when I bought it I spent a few thousand on refurbishing before I rented it out, 3 months ago I had the boiler replaced like for like (old one broke).
Now I have had a look on the HMRC website and its not very clear, how do you tell whats capital expenditure and allowable expenses?
What you have to do is complete a full Self Assessemt tax return covering ALL your income from ALL sources including, of course, the income from the rental property.
You will be taxed on any PROFITS that might be generated by the rental property. If the property produces a loss, you obviously will have no Income Tax to pay on the loss and the loss can be carried forward to the next or future years so it can be offset against any future profits generated. So losses will not go to waste.
The profit or loss is arived at by deducting allowable costs against the rental income.
Allowable costs are essentially any costs incurred by the landlord for the upkeep and management of the property - such as:
Normal repairs and renewals
Property Insurance
Light and heat costs incurred by the landlord
Management charges
Agent's Fees
Accountancy fees
Council taxes and water rates paid by the landlord
Loan/Mortgage Interest on the loan taken out to fund the purchase of the property
Advertising for tenants
Legal costs regarding chasing a delinquent tenant or obtaining an eviction order. Be careful with legal costs as other types of legal costs are NOT allowed.
If the property is a Fully Furnished Letting, the landlord can claim the costs of replacement furniture and fittings. Alternatively, they can forego that claim and instead make a claim called "Wear and Tear" allowance (W&T). W&T is 10% of the Gross Rents less rates/council tax and water charges paid by the landlord.
If you go down the W&T route, you cannot go back to making claims for actual furniture replacement costs. It's an "either/or" situation.
Capital costs incurred on the property are NOT allowed. Instead, they are added to the original purchase cost of the property and you will get tax relief on those costs when calculating the Capital Gains Tax (CGT) liability at a future date when the property is being disposed of.
Determining what is a "repair" and what is a "capital" cost is not always clear cut. The basic rule of thumb is that if the item purchased or service used is a direct replacement of what was there already, then it counts as "repairs" and is allowable.
If the cost "enhances" the property e.g. - double glazing to replace old sash windows, a modern fitted kitchen to replace an old non-fitted kitchen, these costs would not be allowed as they would be looked on as "enhancing" the property.
Those costs would be allowable for CGT, of course.
You will be taxed on any PROFITS that might be generated by the rental property. If the property produces a loss, you obviously will have no Income Tax to pay on the loss and the loss can be carried forward to the next or future years so it can be offset against any future profits generated. So losses will not go to waste.
The profit or loss is arived at by deducting allowable costs against the rental income.
Allowable costs are essentially any costs incurred by the landlord for the upkeep and management of the property - such as:
Normal repairs and renewals
Property Insurance
Light and heat costs incurred by the landlord
Management charges
Agent's Fees
Accountancy fees
Council taxes and water rates paid by the landlord
Loan/Mortgage Interest on the loan taken out to fund the purchase of the property
Advertising for tenants
Legal costs regarding chasing a delinquent tenant or obtaining an eviction order. Be careful with legal costs as other types of legal costs are NOT allowed.
If the property is a Fully Furnished Letting, the landlord can claim the costs of replacement furniture and fittings. Alternatively, they can forego that claim and instead make a claim called "Wear and Tear" allowance (W&T). W&T is 10% of the Gross Rents less rates/council tax and water charges paid by the landlord.
If you go down the W&T route, you cannot go back to making claims for actual furniture replacement costs. It's an "either/or" situation.
Capital costs incurred on the property are NOT allowed. Instead, they are added to the original purchase cost of the property and you will get tax relief on those costs when calculating the Capital Gains Tax (CGT) liability at a future date when the property is being disposed of.
Determining what is a "repair" and what is a "capital" cost is not always clear cut. The basic rule of thumb is that if the item purchased or service used is a direct replacement of what was there already, then it counts as "repairs" and is allowable.
If the cost "enhances" the property e.g. - double glazing to replace old sash windows, a modern fitted kitchen to replace an old non-fitted kitchen, these costs would not be allowed as they would be looked on as "enhancing" the property.
Those costs would be allowable for CGT, of course.
Eric
Here is a challenge for you - what if your bathroom is in total disrepair to the point its no longer rentable then you install a complete new bathroom and tile etc is that a repair? (I had this issue as bath & shower had leaked causing the floorboards to be rotten plaster to be ruined etc - Im considering putting it down as repairs).
Another thing is - with 10% wear tear allowence.
I am in the situation where years ago the rented property was let fully furnished which worked well for me suited my needs but the new tennants required it to be unfurnished - which of course it now is (furniture was past it so was taken to the dump).
Now clearly originally it is an either or but what about my situation - I certainly didnt choose for this to be the situation but had to be dynamic.
Therefore do I still claim the 10% wear and tear due to your point its an either or which cannot be changed OR .... what?
Note I make a loss even without the 10% W&T through structuring the buy to let to such a LTV and its market value at the time there is no way I'll be paying any Income tax rightly on it for a ver long time.
How many years can the loss be carried forwards as I'd quite like to ensure that this loss & future losses are not wasted as at some point in the future it will make a profit.
Here is a challenge for you - what if your bathroom is in total disrepair to the point its no longer rentable then you install a complete new bathroom and tile etc is that a repair? (I had this issue as bath & shower had leaked causing the floorboards to be rotten plaster to be ruined etc - Im considering putting it down as repairs).
Another thing is - with 10% wear tear allowence.
I am in the situation where years ago the rented property was let fully furnished which worked well for me suited my needs but the new tennants required it to be unfurnished - which of course it now is (furniture was past it so was taken to the dump).
Now clearly originally it is an either or but what about my situation - I certainly didnt choose for this to be the situation but had to be dynamic.
Therefore do I still claim the 10% wear and tear due to your point its an either or which cannot be changed OR .... what?
Note I make a loss even without the 10% W&T through structuring the buy to let to such a LTV and its market value at the time there is no way I'll be paying any Income tax rightly on it for a ver long time.
How many years can the loss be carried forwards as I'd quite like to ensure that this loss & future losses are not wasted as at some point in the future it will make a profit.
Welshbeef said:
Eric
Here is a challenge for you - what if your bathroom is in total disrepair to the point its no longer rentable then you install a complete new bathroom and tile etc is that a repair? (I had this issue as bath & shower had leaked causing the floorboards to be rotten plaster to be ruined etc - Im considering putting it down as repairs).
Another thing is - with 10% wear tear allowence.
I am in the situation where years ago the rented property was let fully furnished which worked well for me suited my needs but the new tennants required it to be unfurnished - which of course it now is (furniture was past it so was taken to the dump).
Now clearly originally it is an either or but what about my situation - I certainly didnt choose for this to be the situation but had to be dynamic.
Therefore do I still claim the 10% wear and tear due to your point its an either or which cannot be changed OR .... what?
Note I make a loss even without the 10% W&T through structuring the buy to let to such a LTV and its market value at the time there is no way I'll be paying any Income tax rightly on it for a ver long time.
How many years can the loss be carried forwards as I'd quite like to ensure that this loss & future losses are not wasted as at some point in the future it will make a profit.
Give me a call - I only charge my time at £70 per hour. I'm cheap.Here is a challenge for you - what if your bathroom is in total disrepair to the point its no longer rentable then you install a complete new bathroom and tile etc is that a repair? (I had this issue as bath & shower had leaked causing the floorboards to be rotten plaster to be ruined etc - Im considering putting it down as repairs).
Another thing is - with 10% wear tear allowence.
I am in the situation where years ago the rented property was let fully furnished which worked well for me suited my needs but the new tennants required it to be unfurnished - which of course it now is (furniture was past it so was taken to the dump).
Now clearly originally it is an either or but what about my situation - I certainly didnt choose for this to be the situation but had to be dynamic.
Therefore do I still claim the 10% wear and tear due to your point its an either or which cannot be changed OR .... what?
Note I make a loss even without the 10% W&T through structuring the buy to let to such a LTV and its market value at the time there is no way I'll be paying any Income tax rightly on it for a ver long time.
How many years can the loss be carried forwards as I'd quite like to ensure that this loss & future losses are not wasted as at some point in the future it will make a profit.
PAULJ5555 said:
Thanks for the detailed reply, regarding the work I did to the property before I let it out, would all of this work be put down as capital even if some of the work was a repair (damp work, decorating, replacing an electric shower like for like).
Your call, to be honest. Anything IMPROVING the property is capital. Anything REPAIRING the property is repairs.As I said, there is not always a hard distinction between the two definitions. Be as fair minded and resanable as you can be - keep the backup paperwork (receipts, vouchers etc) and prepare your rental accounts accordingly.
HMRC on the whole will not get too hot under the collar if you make a fair stab at getting it right.
Eric Mc said:
Your call, to be honest. Anything IMPROVING the property is capital. Anything REPAIRING the property is repairs.
As I said, there is not always a hard distinction between the two definitions. Be as fair minded and resanable as you can be - keep the backup paperwork (receipts, vouchers etc) and prepare your rental accounts accordingly.
HMRC on the whole will not get too hot under the collar if you make a fair stab at getting it right.
Many ThanksAs I said, there is not always a hard distinction between the two definitions. Be as fair minded and resanable as you can be - keep the backup paperwork (receipts, vouchers etc) and prepare your rental accounts accordingly.
HMRC on the whole will not get too hot under the collar if you make a fair stab at getting it right.
I was told that anything you spend to get the house rentable before the tenants move in will be capital even if its repairs.
PAULJ5555 said:
Eric Mc said:
Your call, to be honest. Anything IMPROVING the property is capital. Anything REPAIRING the property is repairs.
As I said, there is not always a hard distinction between the two definitions. Be as fair minded and resanable as you can be - keep the backup paperwork (receipts, vouchers etc) and prepare your rental accounts accordingly.
HMRC on the whole will not get too hot under the collar if you make a fair stab at getting it right.
Many ThanksAs I said, there is not always a hard distinction between the two definitions. Be as fair minded and resanable as you can be - keep the backup paperwork (receipts, vouchers etc) and prepare your rental accounts accordingly.
HMRC on the whole will not get too hot under the collar if you make a fair stab at getting it right.
I was told that anything you spend to get the house rentable before the tenants move in will be capital even if its repairs.
And even then, if it is disallowed as a revenue cost against the rental income, if the disallowance is because they consider it capital, you will then be able to offset that cost against the Capital Gain at a future date.
cailean said:
Generally if you bring it back to its original condition it is repairs but if you take it above it is capital (i.e. improvements)
How about if you had a fully functioning bathroom previously and then replaced it/brought it back into better condition (or rather a condition that would enable it to be rented?)Welshbeef said:
cailean said:
Generally if you bring it back to its original condition it is repairs but if you take it above it is capital (i.e. improvements)
How about if you had a fully functioning bathroom previously and then replaced it/brought it back into better condition (or rather a condition that would enable it to be rented?)Once the letting begins, then regular repairs, maintenance and renewals would be offsetable against the rental income.
As I said before, offset what you think is appropriate.
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