Pay less tax by claiming pre-letting costs

Pay less tax by claiming pre-letting costs

15:42 PM, 13th April 2012, About 12 years ago 6

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Accounting for spending on letting property before the first tenant moves in often confuses landlords – and their accountants.

Countless landlords miss out on potential tax savings because their financial advisers wrongly claim pre-letting expenses are not allowed by HM Revenue & Customs.

In fact, landlords can reclaim these expenses under certain circumstances.

Working through a case study explains the process:

A landlord buys a home as the first in a portfolio of buy to let investments, but needs to carry out some refurbishment works before moving in a tenant.

At this stage, the property is not a letting property because no tenant has moved in.

The date of first letting is all important – the date the first tenancy agreement starts. From that day, the landlord has a rental business and can put income and expenses through the accounts.

Section 57 of the Income Tax (Trading and Other Income) Act 2005 deals with expenses incurred before letting.

The law says if a landlord incurs costs for a letting business no more than seven years before the date of first letting or the expense is allowed providing the expense could not be reclaimed in another way, then they can be put through the letting business accounts as if they were incurred on the date of first letting.

The rule covers revenue expenses – these are day-to-day repairs and renewals, not improvements.

In are costs like painting and decorating, fixing the roof and replacement doors and windows.

Out are improvements – one off costs like converting the loft in to living space or adding a conservatory that add value to the property.

These are just examples, and expenses allowed under Section 57 will vary between properties and landlords.

The rule also applies to landlords letting their former home once they have moved on.

If our landlord spent £10,000 on refurbishment adding replacement windows, carpets, redecorating and tidying the garden fences etc, that money is set off against the first £10,000 of rental profits – cutting tax by up to £4,000, assuming the landlord is a 40% tax payer.

Thinking about the law, it seems perfectly reasonable that a landlord forking out money to set up a business should have a way of reclaiming that cash like any other trader.

The rule only applies to the first property in a portfolio. Pre-letting expenses for second and subsequent properties are put through the accounts as they are incurred because the landlord already has a letting business.

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17:25 PM, 13th April 2012, About 12 years ago

This is encouraging but is it right? Refer to The quantum is important I think. If the type of works and the total cost of the works on a newly-bought property are similar to what you might expect to see between lettings then they are probably allowable,

15:09 PM, 16th April 2012, About 12 years ago


We are aware of the possible claims in accordance with HMRCs published
manuals and updates and include all that is allowable when preparing our
clients' Tax Returns. Landlords need to be careful, however, that
claims for certain items are not made where the "wear and tear"
allowance is also being claimed.

6:59 AM, 17th April 2012, About 12 years ago

Is their a limit as to how much expenses you can claim towards general Maintence and repair whilst the property is let

Nicole Smith

8:52 AM, 5th September 2013, About 10 years ago

I remortgaged my family home last year to let to students and before renting it I spent about £10k on replacing the kitchen, bathroom and central heating. I also spent some money on bringing it in line with HMO regs.
I was under the impression that I would be able to offset these costs as pre letting expenses but my accountant says that this isn't allowed because the property was my family home.
Has anyone else any comments surrounding this subject please ?

Mark Alexander - Founder of Property118

11:28 AM, 5th September 2013, About 10 years ago

Reply to the comment left by "Nicole Smith" at "05/09/2013 - 08:52":

Hi Nicole

If you would like a second opinion from an accountant who specialises in advising landlords on property tax this is the member profile of the tax adviser I've been using for several years and he really is excellent >>>

Pauline Anderson

0:47 AM, 9th January 2015, About 9 years ago

Reply to the comment left by "Mark Alexander" at "05/09/2013 - 11:28":

I have a question. M sister and I have rented out a bungalow inherited from our dad's estate. Dad had dementia and had been left unattended by his care workers for 4 days. I could not contact him (phone off the hook) so I contacted a relative who lived closer than I did and asked him to check the property. He asked permission to break in, which was given. Dad had fallen and was taken to hospital. Whilst on the floor, and crawling, he had bowel movements. Obviously the carpet had to be removed. It was replaced with laminate flooring. Could this be classed as appropriate for a pre-letting expense? Replacement windows and doors were also required as: window that had been damaged to break in had been boarded up: they did not meet safety requirements either(only small openings, insufficient for someone to escape through). Can this too be classed as pre-letting expenses?

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