Hello,
Non-accountant asking for advice, please. Last November I bought my first BTL flat. I’m wondering how to differentiate between capital and revenue expenses, especially when using the cash basis.
- 14/11/2018 – Purchase completed; flat remained empty until…
- 8/1/ - 11/3/2019 – Repair work (decorating, replacing kitchen with similar, etc.)
- 8/3/2019 – First tenants moved in (while annoyed builders still finishing off…)
As I understand it, for HMRC’s purposes the date of the first letting (8/3) marks the start of my “rental business”. Repairs carried out before that have to be booked as capital expenses; after that date repairs are revenue exp. and are allowed against rental income. Costs like Council Tax, water, electric, building service charges, property insurance are revenue exp. (even those paid before 8/3). Does that sound reasonable?
What I’m confused about is whether the pre- / post-first letting distinction between capital and revenue exp. for repairs is overridden by the cash basis? For example, in January the builders gave me a quote for £4000. I paid two advances of £1k before 8/3 and the balance of £2k after 8/3. So is that £4k of capital exp., or a split of £2k capital exp. + £2k revenue exp. (because on the cash basis, the £2k payment was made post-letting)?
On 19/2 I paid £250 for laminate flooring (replacing worn laminate). I eventually returned some and got a refund of £50 on 12/3. So do I treat that as a capital exp. of £250 and then “refund income” of £50?
Around £1200 of work done before 8/3 was invoiced after 8/3 and paid for on 22/3. Does that count as capital or revenue expense?
All advice gratefully received.
- PJ
Replies (14)
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Hello,
Non-accountant asking for advice, please.
Let me just stop you there, get an accountant.
It might not be the advice you want but it's better advice than the advice you hoped to get.
The value of any advice would be worth paying for even if you are overseas. Any good accountant you engage will ask you lots of supplementary questions and want to see the receipts. All for the purpose of giving you the best possible advice to minimise your tax position.
Well I would, but it's not so easy logistically because I live outside the UK.
In these days of the internet ?
Outside the UK is the same as living next door.
So folk tell me - in the same breath as calling me a Luddite.
To answer your key question, no, the cash basis doesn't override the capital revenue distinction.
You should be careful that not all "repairs" will necessarily be revenue in nature just because you have a tenant occupying the property.
It shouldn't be too difficult logistically to get a UK accountant just because you're out of the country. You can always scan or take pictures of invoices. Worthwhile as you'll be setting yourself up for problems otherwise.
There might not be any UK tax due, but you may need to declare rental profits on your local tax return?
I agree that you should seek advice from an accountant with a good knowledge of property letting taxation. You should, in particular, seek advice as to whether the new kitchen is claimable as revenue as this is likely to be a large sum. The fact that expenses of a revenue nature are incurred prior to letting does not necessarily preclude a claim. There are circumstances where such costs can be treated as incurred on the first day of letting. The accountant will need to ask a number of questions before being able to advise you properly.
Edit - posted before I read your last post. It will probably therefore be advantageous for as much expenditure as possible to be of a capital nature, which you may be able to argue if the property was not fit to let on acquisition.
Edit - posted before I read your last post. It will probably...
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(1) logistics clearly not an issue as you have managed to find a UK site which may be able to assist you with your queries - much the same as an accountant would....through the power of email.
(2) 'I don't think there will be any tax to pay...' is the very basis on which checking with someone who knows the rules is a good idea.
As a matter of interest, are you expecting a repayment of tax or did you successfully apply under the Non-Resident Landlord scheme?
Ting!
I guess I should add something more useful while I'm back here...
In reference to the OP's "I just posted my question because my local accountant looked a bit blank when I started talking about UK pre- and post-letting expenses..."
erm, as has been pointed out, while commencement of letting may be an important point, it's nothing to do with the capital/revenue question.
And on Paul's reply ("There might not be any UK tax due, but you may need to declare rental profits on your local tax return?"), there's no guarantee that UK accounts would determine local tax.