Re-wiring costs on a rental flat - what is current position?

Re-wiring costs on a rental flat

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Can any one please update me on the current tax position regarding the costs for the re-wiring of a rental flat?

The position is this: A friend is about to rent her flat out and buy a new house.  The old flat needs re-wiring and will cost £10,000.  Can any of the cost of the re-wiring (being essential replacement/repairs not enhancement work) be deducted from her rental income? The work will be required to be completed before she can rent the property out?

Many thanks for your help.

Replies (35)

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By w.mogford
08th Aug 2016 15:24

Does not the principle decided in the 1930s Law Shipping case apply, property not capable of renting out until work as described carried, hence capital in nature?
Lanacre

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Replying to w.mogford:
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By Polly-Esther Kakz
08th Aug 2016 15:41

Whatever floats your boat.

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Replying to w.mogford:
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By Arbeiter
08th Aug 2016 18:27

Thanks, but I don't think that necessarily follows. Why capital in nature because the property not capable of being rented out? In this case it is old wiring that needs to be replaced otherwise it will not meet the standards necessary for rental purposes and is dangerous. I thought it would be deemed as revenue as a repair/replacement, not enhancement, similar to the replacement of broken windows in a rental property. As it will be expenditure incurred before the rental starts, I thought it would be deemed as "start-up costs" but would like clarification from anyone who has a definitive answer.

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By JMT21
08th Aug 2016 16:00

I would say the costs are an allowable pre-trading expense. The work will involve a small element of improvement, but the owner is replacing the existing wiring system with the nearest modern equivalent which usually makes it allowable.

It's the same as replacing single-glazed windows with modern double-glazed units, which again would be a revenue expense.

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By stratty
08th Aug 2016 17:07

£10k for re-wiring a flat sounds a bit pricey.

If it is replacement albeit modern equivalent then revenue otherwise if any substantial improvement and extra wiring then capital.

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Replying to stratty:
RLI
By lionofludesch
08th Aug 2016 18:30

stratty wrote:

£10k for re-wiring a flat sounds a bit pricey.

<

I just assumed the flat was in London.

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Replying to stratty:
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By Arbeiter
08th Aug 2016 18:30

Thanks but this is London. This is cheap and £10k is the cheapest quote so far. There is no enhancement - it is a case of switching on a switch and a light comes on. Like-for-like, but using modern materials.

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Replying to Arbeiter:
RLI
By lionofludesch
09th Aug 2016 09:50

Arbeiter wrote:
Thanks but this is London.

Ah.

Thought so.

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By Andywho is fed up
08th Aug 2016 18:44

The crux of the issue is could the flat be let in it's current state? If so, then the expenditure is revenue. If not, capital. Your question seems to indicate that it cannot so I would humbly suggest that the work is capital in that it simply puts the asset in a position to be let.

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By Polly-Esther Kakz
08th Aug 2016 19:16

Will she still be living in the flat when the work is carried out? I agree that this does not fall within Law Shipping, but while the flat is still occupied by your "friend" it is not an asset of the property business that is being repaired, but a personal asset.

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Replying to Polly-Esther Kakz:
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By Arbeiter
08th Aug 2016 23:28

Sorry I do not get this. It is her personal asset both before, during and after letting. Her personal asset will be let out to tenants, but only once the wiring has been fixed. It is not being transferred to a different entity. Also it appears that it is "pre trading" expense that I referred to above but I would like confirmation from someone experienced who knows the answer please who has dealt with this issue before.

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paddle steamer
By DJKL
09th Aug 2016 09:24

Surely one of the key questions (implied by the original post) is that the flat is currently capable of being lived in and in fact someone is living there?

It is implied that the owner currently lives there but it would be helpful to have this confirmed by the OP.

If she is living there then surely by definition the property is currently capable of being used as living accommodation. If she is not living there ,and nobody has been living there, my sentiment would not be quite as positive.

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Replying to DJKL:
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By Arbeiter
09th Aug 2016 12:00

Yes the owner is still living in the flat. It is habitable but the wiring is regarded unsafe. She will move out in early September and the flat will then be advertised to rent. Whilst the flat is being advertised for rent during September electricians will upgrade the old wiring and then the property will be let to a new tenant. Is it right that the cost of the re-wiring can be regarded as pre-trading expenditure? I would have thought that it would but have been trying to get clarification on this and whether there are any "tests" that could be applied to ensure this is treated correctly as either "pre-trading" expenditure or capital expenditure in nature and thus not a deductible expense.

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By mrme89
09th Aug 2016 09:42

You can not deduct costs from income that is yet to arise from a property business that is yet to commence.

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Replying to mrme89:
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By Polly-Esther Kakz
09th Aug 2016 12:06

That is what HMRC officers always say, contrary to their own guidance at PIM2505.

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By Ruddles
09th Aug 2016 09:47

There is a simple test. Could the property be let in its current condition and, say, the re-wiring be done in a year's time in between tenants? If so, then it shouldn't make any difference if the re-wiring is done in that gap or in the current 'gap' between own occupation and letting. Revenue.

If on the other hand the property is incapable of being let in its current condition then I'd say capital.

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By Polly-Esther Kakz
09th Aug 2016 10:11

You appear to just want somebody to tell you that you are right, when you quite possibly aren't.

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Replying to Polly-Esther Kakz:
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By Arbeiter
09th Aug 2016 11:53

Pathetic response. If you cannot respond sensibly then don't bother responding and sounding like an idiot! Act like a professional if you are indeed one!

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Replying to Arbeiter:
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By Polly-Esther Kakz
09th Aug 2016 12:02

Oh, okay. And I had good news too.

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Replying to Arbeiter:
By Ruddles
09th Aug 2016 12:03

I'm with Polly on this. You have challenged two answers that suggest that the treatment is capital. But you have not challenged any of the answers that suggest revenue. Which suggests that you already have in mind what you think/would like the answer to be and appear to be seeking confirmation of that. No-one is going to be able to give you a 100% definitive answer because of the very nature of the capital v revenue issue - the precise, and I mean precise, circumstances will dictate the appropriate treatment. I could give you actual examples of similar expenditure (one was indeed re-wiring) where there were subtle differences but significant enough to cause the expenditure to be treated differently in each case. Based on the limited information available I would not be prepared to hazard a guess as to which was more closely aligned to your situation.

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Replying to Ruddles:
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By Polly-Esther Kakz
09th Aug 2016 12:07

Actually, based on the OP's 12:00 post, I'd be inclined to claim it. :)

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Replying to Arbeiter:
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By mabzden
09th Aug 2016 14:42
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Replying to fawltybasil2575:
By Ruddles
09th Aug 2016 14:40

Some good stuff, Basil, but also some complete b*llocks. If I rent a flat to someone in the full knowledge that the tenant is going to be using it as a crack factory then whilst I may be guilty of aiding and abetting a criminal the rental of the flat is not, ipso facto, illegal.

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Replying to Ruddles:
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By Polly-Esther Kakz
09th Aug 2016 14:51

Are you Glaswegian? Basil was talking about growing a little blow under some funky lighting, and you turned it into a full-blown crack factory

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Replying to Polly-Esther Kakz:
By cheekychappy
09th Aug 2016 15:03

Polly-Esther Kakz wrote:

Are you Glaswegian? Basil was talking about growing a little blow under some funky lighting, and you turned it into a full-blown crack factory

That's how it starts.

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Replying to fawltybasil2575:
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By Arbeiter
09th Aug 2016 14:43

Thank you for your very well laid out clear response. I will take your comments into account and revert back to the client and friend. I regard the impending work as revenue in nature (and a pre-trading expense) and wanted assurance from someone else that my thinking was (in my humble opinion) correct. The issue of why the rewiring "needs" to be done is yet to be determined.

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Replying to Arbeiter:
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By Polly-Esther Kakz
09th Aug 2016 14:49

Ah that will explain why you argued with everybody that expressed a contrary opinion then!

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Replying to Polly-Esther Kakz:
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By Arbeiter
09th Aug 2016 15:07

"Argued with everybody"? Really? Where is your evidence or are you here just to waste everybody's time with stupid comments?

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Replying to Arbeiter:
By Ruddles
09th Aug 2016 14:55

Just bear in mind that the length of a response is no indication of its accuracy. There are at least two basic, and very obvious, flaws in Basil's logic.

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By The Highlander
09th Aug 2016 15:03

Interesting one. I have to say I would have taken the choice of getting a split invoice from the electrician showing the cost of necessary works to make the property legally capable of being let and other repair works (such as changing fuse box, light switches etc). I was originally of the opinion that making the property legally capable of being let was without doubt a capital expense.

However Basil makes an interesting argument against this thinking and since Polly/Portia seems to be thinking along similar lines, and is much more capable than me, I would, if you're feeling capable of putting forward a strong argument, follow their advice.

I have to say Arbeiter I wasn't impressed by your outbursts at some posters comments. I would suggest if you want to continue to get helpful comments, which you have, you should avoid that in the future.

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Richard Hattersley
By Richard Hattersley
09th Aug 2016 16:15

Moderator: We are watching this thread. If the confrontation responses continue, we will have no choice but to close the thread.

Remember, name-calling will not be tolerated on AccountingWEB. This is a professional site. Think, would it be accepted use this language in an office or a professional environment.

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Replying to fawltybasil2575:
paddle steamer
By DJKL
10th Aug 2016 11:18

Of course the safety aspect is itself tricky.

Whilst no expert on electrical system testing (not my part of the business) I thought that if a property was to be let as an HMO then testing before letting was obligatory (and at intervals thereafter) whereas if let as a single family unit no such statutory testing is currently required (though of course there would be a "common law" requirement to believe safe) and I think re the latter a visual inspection would be sufficient.

We never let HMO units when we did flat rentals but for those flats we let (61) we did not have to test the installed wiring systems merely the appliances (although did need to do gas checks)

So maybe, re the OP's question ,what type of letting has a bearing on how necessary the works are; if the wiring visually looked okay then the property might have "legally" been fit to let as a single unit, whereas if an HMO an intrusive check will have been needed (or a wall scan check and sample outlets etc) which would, we gather, deem the unit unfit to let in current condition.

So, was the state obvious at outset or has the unsafe status arisen from a zeal to ensure safe beyond statutory requirement by doing a check?

Seems it could be a bit like Schrodinger's cat , you do not know unsafe until you check but only need to check if you think unsafe. (And as an aside physical checking as an activity imho has greater potential to create a short etc than not testing, unscrewing socket face plates to check wiring behind and then replacing may well weaken the capable connections- for commercial property we tend to have sample tests/scans done for this very reason)

Whilst for tax a single family let and a HMO let are treated the same there do appear to be different tests re existing fitness, or otherwise, to let which may have a bearing on treatment of the expenditure.

So this surely begs the question what test is appropriate re capital/revenue expenditure decision, fit to let or fit to let as an HMO ,which possibly is determined by what form of letting was envisaged?

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By JOANP
15th Aug 2016 12:15

A partial rewire of my house with new fuse box cost me £1475. The guy has a caravan and is willing to travel and is a great electrician.
At his prices you wouldn't need to worry about capital v revenue.

Tell your friend to E-mail Mark Wilson at [email protected]

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By [email protected]
15th Aug 2016 17:28

Back to Basics

I put it to my clients this way: 'If you buy a house and get it very cheaply because it's unfit for purpose, then the cost of repairs needed to bring it up to the standard at which it can be rented out will be capital, not revenue expenditure.

'However, if you buy a well maintained house whose woodwork has been painted every five years and is now due for its cyclical repainting, then have it repainted before your first letting and we can claim the cost as revenue expenditure.'

The fact that the property is already owned and has been occupied by the client doesn't alter the principle.

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By Michael C Feltham
15th Aug 2016 19:14

"what is current position?"

All depends upon the demand of what is plugged in or connected!

For example, two bar electric fire where each element is 500 Watts = 1,000 Watts or 1Kw ; divide 1,000 Watts by 230 Volts = 4.347826 Amps, or if you like, current.

(Oh for smilies on this site!)

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