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Rental expenses for replacements

Hi.

I have a client who in the middle of 2011/12 moved out of the family home and commenced to let it (it had been let before but stopped in 2004).

The property is partially furnished so will not qualify for W&T.

Just before letting commenced the client purchased a new washing machine, dryer and cooker as the old ones were out of date and would not pass the electrical tests for let properties.  Can these costs be claimed against the rents?

Under renewals you can claim for replacements but not the original items, these are replacements but the original costs of the items would not have been claimed against any rents so I assume I can not make a claim for these replacements.

I spoke to a few collagues and some said they would as they are replacements.

I would be interested in others views and why/if they calim such expenses.

Thanks.

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11th Jan 2013 08:07

Similar question

Just logged on to ask a similar question, don't mean to hijack!

Our client's situation is that they inherited a property and began to let it out they purchased all new white goods just before doing this.

They feel it's replacements and allowable - but I'm not so sure!

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By ACDWebb
11th Jan 2013 08:28

I would tend towards

they are the initial costs and not allowable for both. But perhaps I'm just mean.

For the OP they could not use the existing to let and to start the business had to buy new & the follow up seems similar, unless I suppose it was an already let property & they took the view to replace before continuing.

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By awoodj
11th Jan 2013 11:51

White goods included with property

A common scenario when buying property for rental is that it will have some white goods included in the sale. Should you let the property and these goods are then found to be faulty and need replaced are you saying these would not be allowable as replacements? You purchased them as part of the overall property purchase for your rental business and you are then replacing them? I understand it may be different if you originally lived in the house and purchased them for your own use initially but for a purely rental property purchase I would have hoped it was allowable?

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Pre Rental ?

Was your client receiving rent when he purchased the white goods, if the answer is no then they are not allowable costs as there is no income to set them against. If the answer is yes then they are replacements and a claim would be allowable

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Well...

... the last response is clearly incorrect since the pre-trading expenditure rules apply to rental businesses.

Now the legislation is clear that every property rental activity of a person is DEEMED to be a single business.  If you apply that as it says, the new letting is part of the same business as the old letting.  There's clearly then a replacement.

HMRC disagree and say that the business has ceased and recommenced though (contrary to the deeming provision in the legislation).  See PIM2510.

If you accept that point of view (or choose not to argue with it - this also applies to divelegend's situation by default), then there are two points:

deduction of renewals expenditure is actually available on a statutory basis (which is why the concession is being withdrawn).expenditure that would be allowable if the business is being carried on, but is incurred before it is being carried on, is allowable as pre-letting expenditure.  See PIM2505.

So if you're dealing with genuine renewals made wholly and exclusively for the purposes of the property business, I'd disagree with ACDWebb and argue that the expenditure was allowable as pre-letting renewals expenditure.

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04th Dec 2013 21:30

concession is being withdrawn

George Attazder wrote:

deduction of renewals expenditure is actually available on a statutory basis (which is why the concession is being withdrawn).

 

This has now cropped up for me, and HMRC tech had some docs on it - but no webpage suggestions - so now has put it in the snailmail to me - interesting.

 

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By ACDWebb
13th Jan 2013 11:12

It's a fair point of view

Pre trading possibly, but if you have white goods that cannot be used in the property pre letting do you not effectively have an empty property at the start of the business, so that the goods that are purchased and acceptable for letting are your initial outlay for the business rather than replacements?

So if you purchased the property with the cooker in and could let it without having to remove it then replacement would be ok, but if it did not meet regs (say had been a family home previously & unlet but was bought as a BtL) then you are hitting the explanation in the Property Toolkit Q9

"The underlying principle is that the cost of buying a property in good condition is clearly capital expenditure. Hence the cost of buying a dilapidated property and putting it in good order is also capital expenditure." And the second sentence is effective. I realise that Toolkits are just HMRC's interpretation, but I think that was where I was coming from.

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Well...

... as you say, HMRC are bound to favour the application of Law Shipping over that of Odeon Cinemas.  The distinction between the two though was whether or not the dilapidation was reflected in the price.

When you're introducing your property to your lettings business with fully functional white goods (oh we never knew they wouldn't meet the electrical safety tests) there's an element of choice.

Day 1 - you introduce the property complete with white goods to the business that has yet to commence.  There's no reduction in value, because you haven't appreciated the deficiency in the white goods.Day 2 - you realise that the existing white goods need replacing and replace them before the business commences.Day 3 - the business commences and the cost of replacing the white goods can be claimed as pre-trading expenditure.

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14th Jan 2013 09:20

No straight forward answer then.

The property has been owned for years, period of letting to 2004, then re let from July 2011, so I would say it is a "new" letting business.

There is a "tension" between the pre letting rules, per George Attazder, and then the comments by ACDWebb, but this property was not purchased in a run down state, etc.  A survey for the house said they had to be repalced as would not pass electrical tests.

As an aside a wet room had to be completely changed for a similar reason (essential electrical work and new ceiling) and I have decided that is Capital as the property could not be let until that work could be done.

In this case if I have taken that view of the wet room I have to take that view on the cooker and dish washer?

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