Pre Trading Expenses on 1st Let of former residence

[tubbyj]

Having bought another property, we moved out of our original residence and did some basic work to make it easier to rent out.

The flat has a mortgage that permits short term lets and is below the original purhcase price of the property.
25th June Moved
5th July - had the flat re-decoraterd (paint only)
then had the carpet replaced and bathroom vinyl'd to replace carpet.
Had some light fitting changed and safety check
Replaced matress, sofa, and oven.
12th August signed an agreement with rental
11th Spetember 1st Let as short term furnished property.

I am usnsure of what per trading expenses I can claim and from which key date.
Can I claim Interest on mortgage, council tax

Would the 2k re-decoration be allowed as a expense or is that capital?

I know that mattress, sofa, oven, carpets are not allowable.

Rgds
Mark

[maths]

I would suggest that the letting business commenced at the date the first tenancy agreement was signed.

Expenditure even if incurred prior to this date is potentially deductible.

The following is deductible:
redecoration;
council tax.

Interest on mortgage incurred after this date.

10% wear and tear allowance equal to 10% of "net rents" (this effectively provides for depreciation of inter alia carpets; curtains; fridges; dishwashers and furniture as capital allowances are not available except re furnished holiday lettings).

The cost of the oven is deductible if it replaces an identical one; same for light fitting.

Safety check costs probably not deductible as "capital".

[Incredulum]

OP: some knotty questions to which nobody knows the answer.


I should suggest that the letting business commenced at the earlier of the signing of the first tenancy agreement, or on the date the property was first advertised for rent. If on this latter date the property was ready for moving in, then I suggest that emphasises this point.

The following is probably deductible as it relates directly to the rental business:

safety check.

[section 44]

or perhaps the date that they moved out (when the private use ended), assuming that at the time they intended to let it.

[King_Maker]

HMRC's view that it can only begin when the first property is let - not sure I agree with such a dogmatic view :

http://www.hmrc.gov.uk/manuals/pimmanual/pim2505.htm

[Incredulum]

HMRC are wrong - there's a dogmatic view I hope you can agree with! They were right under "old" Schedule A, but that view has been wrong for the last fifteen or so years.

Commencement is determined in the same way as it is for a trade - s57 (as applied by s272) ITTOIA makes it clear that normal trading principles apply. So if you look to http://www.hmrc.gov.uk/manuals/bimmanual/bim70505.htm and http://www.hmrc.gov.uk/manuals/bimmanual/bim70510.htm, then drawing parallels to the Birmingham & District Cattle by-products Ltd and J&R O'Kane Ltd cases there is no doubt that a rental business begins when the property is first advertised - akin to a retail business first opening its doors. A retail business does not have to make a sale in order to commence trading; similarly a rental property does not have to be rented out for the rental business to begin. Equally, the business beings when a pre-let is sought, so if in respect of an as-yet unfinished (or even unstarted) building.


The more I look at this, the earlier I believe a letting business starts - and I am aware of cases where HMRC have accepted that their published guidance is incorrect.

[King_Maker]

Incredulum,

I agree - HMRC seem to be still living in the " dark ages" of Schedule A.

[section 44]

or perhaps the date that they moved out (when the private use ended), assuming that at the time they intended to let it.

Are we thinking along the same lines?

[Incredulum]

Definitely.

[King_Maker]

There may be occasions where a later date might be advantageous - I have in mind a (possibly) higher property valuation for capital re-financing.