Refurbishments cost loans – clause 24

by Readers Question

2 years ago

Refurbishments cost loans – clause 24

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Refurbishments cost loans – clause 24

We are property investors between Salisbury and Southampton and we wrote to Mr Rob Marris (Labour MP Wolverhampton South West) who spoke in the House on Clause 24.refurb

We own seven houses which are let to families with children and we pride ourselves on the standard of accommodation. We like to refurbish the properties either every 10 years or when they become vacant at suitable periods.

The main expense is renewal of kitchens and bathrooms. Typically these cost 13 to 20 thousand per home, and we would finance this over a five year loan on each property. The costs of such borrowing interest and fees etc will now be disadvantaged by the measures under clause 24 make such refurbishments non viable.

Either we do not now make refurbishments resulting in poor quality housing stock or we evict the tenants and sell up. We would prefer to refurbish and continue to offer long term tenancies to long term tenants.

I received an email from Mr Marris which shows he does not understand the effect of the legislation he proposes. He told me his understanding was that:

  • Maintenance is an allowable expense
  • Wear & Tear Allowance covers furnishings and equipment.
  • Expenditure on improvements may reduce CGT on sale.

Rob Marris MP
We are talking about a loan for property improvement for say five years on a house we have owned for some time. I am aghast to see he is speaking in the house about legislation which he does not understand.

He is clearly not familiar with the property market as we will be outbid in seven out of eight times we make an offer for a property by owner occupiers. Despite this he feels that we are depriving owner occupiers a home. There is a big demand for our houses from tenants.

We will be sure to make the evicted tenants well aware that this measure is forced upon us by Government.

How much misery and homelessness is Osborne willing to cause to effect this measure?
George Osborne is a very clever man. He knows that there is a tendency for owner occupiers to vote Tory and tenants to vote Labour. By introducing clause 24 he hopes to increase the number of the former and reduce the latter .

If he achieves his objective many private landlords will sell up and put their tenants out on the street. Is your local council equipped to house this new stream of misery? Will these disenchanted voters return your party to office when it becomes clear that your fingerprints are all over this?

These private landlords will be replaced as owners either by true blue owner occupiers or corporate landlords who will be rate of return on equity driven. Consequently they will be much less benevolent Landlords.

Whose side are you on? There is a huge opportunity to save the tenants ( your natural supporters) an uncomfortable ride.

Do let us know?



Gary Dully

2 years ago

Send him and your kitchen and bathroom fitters a copy of the spreadsheet and add your position as an example.

'Clause24' is going to wreak havoc to kitchen and bathroom fitters as well, they may be inclined to sign the petition as many will meet other landlords on a regular basis and spread the word.


2 years ago

It's not clear if you're talking about property improvement or maintenance. Replacing the kitchen like for like (updated obviously) is a replacement and an allowable expense. Improvement e.g. adding a garage or extension or substantially changing the kitchen is an improvement and allowable against CGT. Wear & Tear allowance is being abolished in favour of actual costs.

£13k to £20K seems expensive - I would expect top luxury for that. My last bathroom was £1500 and kitchen (bespoke) £6500, albeit quite a small one. The ones replaced were 30 years old but perfectly functional.

Chris Byways

2 years ago

Reply to the comment left by "Puzzler " at "09/01/2016 - 11:02":

Am I right in thinking if upgrading is done when empty, it is a capital expense, but like for like replacements when occupied is a revenue expnse?

The abolition of the 10% W&T only affects FULLY furnished premises. More accounting, but really is fairer imv, if you got 10% whatever, then the actual expenditure effectively comes from the net profit, so was a disincentive to actually make the improvements.

david porter

2 years ago

The issue is the loan from the bank to finace such works.
This loan will be caught up in the same tax trap in clause 24. It will lead to work not being done to the detriment of tenant and landlord.Hope this helps

Michael Barnes

2 years ago

You say you want to refurbish every 10 years and take out a 5-year loan to cover the cost.

Seems to me that for the other 5 years you should be putting aside the same amount of money, thus avoiding the need for finance and increasing your profit.

I would be interested to know how the amount borrowed enters the accounts: is it taken as an expense when the work is done, or is it taken as the non-interest repayment amount each month?

david porter

2 years ago

Ideally we should have money set aside each month for a sinking fund. However ,try talking to HMRC about that? The periods between refurbishments depend upon clients wear and tear. Therefore ten years is just an estimate.

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