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Rental Property - Initial Purchase of Fixtures

Do the initial purchase of fixtures get capitalised?

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If a client of ours was to purchase an unfurnished property to let, and buy beds, sofas, tables etc, how is this accounted for? Are they essentially out of the landlords pocket until a replacement is made where they can claim 'Replacement of a Domestic Item', or do they get capitalised and added to the purchase price of the property to reduce CGT on the sale?

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By Tax Dragon
14th Sep 2021 07:47

Luke, accounts and tax are different. I'll let an acountant comment on the "how is it accounted for" part of your question.

You're right from a tax point of view - there's unlikely to be any tax relief for any of the items you mention. It's a capital cost but not part of the cost of the property.

Not every cost attracts tax relief. You must know that if you're in practice.

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Replying to Tax Dragon:
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By Luke5
14th Sep 2021 07:53

Apologies, I worded that wrong! Am I correct in saying that there’s no tax relief until the fixture is replaced and the initial purchase of the fixture(s) is the cost of the owner of the property?

What would happen if the property would then be sold full furnished? Would you just have a greater sale price and not be able to deduct the fixtures against this?

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Replying to Luke5:
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By Tax Dragon
14th Sep 2021 09:40

Luke5 wrote:

Would you just have a greater sale price...?

If the buyer is paying extra for the furniture, that extra is not part of what they are paying for the property itself.

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By ireallyshouldknowthisbut
14th Sep 2021 09:39

Initial furnishing is a tax nothing for income tax.

One interesting point however is if the purchase forms part of the double entry bookkeeping for assessing the monies invested in the business so as to establish the maximum availability for mortgage interest relief. I would say it did but its rare that its an issue.

As for CGT, I would take a look at the CGT manual, the list of allowable expenses is quite slim and good to know off by heart.

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By Luke Spooner
14th Sep 2021 11:35

I'm currently studing ATT and have come accross this exact area haha...

Firstly we need to establish, is the rental property being operated as a normal let, or is it a holiday let? Those are treated differently.

In a nutshell, for normal lets 'domestic items' and 'fixtures and fittings' (so things such as whitegoods, bedding, tables, chairs etc) are allowable as revenue expenses, and so can be deducted from rental income under UK Property business income.

If it is being operated as a holiday let however, these items are disallowed and must be capitalised, you still get some releif as you can claim capital allowances on these items.

The other exemption to all of the above, is that if any cost is incurred upon purchase of the property to get the property into a 'habbitable state', then that cost should be capitalised. So an example, say you painted the front door, usually this would be revenue expense, but if you purchased the property in an unhabbitable state, then painted the door before you first rented it out to a tenant, then the painted door would be treated as a capital cost and you cannot deduct it from rental income.

As always, there are no many grey areas with these things, just the above is a guide but depends on your personal circumstances.

Hope this helps.

Luke

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Replying to Luke Spooner:
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By Tax Dragon
14th Sep 2021 11:48

Are you learning using your granddad's study manual? You might want to invest in something a bit more relevant to today's world.

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Replying to Luke Spooner:
By ireallyshouldknowthisbut
14th Sep 2021 13:08

Luke, if you are still studying and been asked to deal with this area which is presumably outside of the scope of your current knowledge, I would make sure you run through this carefully with whoever is supposed to be training you.

Its a surprisingly complex area and many accountants do badly. Don't join the bad accountants in making a hash of it.

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Replying to ireallyshouldknowthisbut:
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By David Ex
14th Sep 2021 16:04

ireallyshouldknowthisbut wrote:

Don't join the bad accountants in making a hash of it.

He already has done. The “advice” he offers contains a number of errors.

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By More unearned luck
14th Sep 2021 13:12

The things you mention are not fixtures; they are not even fittings. I'd call them furniture.

A fixture is something attached to a building with a combination of degree of attachment and intention such that it is part of the building, eg a bath tub or a wainscot.

A fitting is something attached to a building without the factors that make it a fixture., eg a mirror screwed to the wall. They are chattels or moveables in legalese.

Physical things not attached to a building are also chattels or moveables, eg your beds and sofas etc.

It isn't always easy to tell if something is a fixture or a fitting which is why accountants tend not to try and lump all expenditure in the same account.

A Mr Botham fell behind with his mortgage payments and Lloyds TSB reprocessed his flat. A dispute arose over which items belonged to the bank (because they were fixtures) and which belonged to Mr Botham (because they were were fittings). The report of this case provides a guide as to which things in a home are fixtures and which are fittings.

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Replying to More unearned luck:
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By DJKL
14th Sep 2021 16:21

Then you can observe Mr Thorn in "The Chain" to see how far the boundaries can be stretched.

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