My friend brought a buy-to-let property in December 2020 and before the tenants moved in first time he did the following works -
-replaced battery operated smoke alarms with hard-wired smoke alarms and installed heat alarm in kitchen to meet the legislation
-changed a carpet
-changed some tiles in the bathroom
Also, the letting agency charged for advertisement, finding tenant, drawing the lease and preparing inventory. They deducted the cost for from the first month’s rent.
Can we consider the above costs as expenses and deduct from Rental Income in Property Expenses section (UK Property 27 - Property Repairs and Maintenance) in the Self Assessment?
Arguably costs to improve the property before a tenant moves in might be considered (by HMRC) to be ‘Capital Expenses’ rather than ‘Revenue Expenses’. You should keep a record of Capital expenses to claim against Capital Gaiuns Tax / Inheritance tax when the property is sold.
Certainly, the costs of an agent finding you a tenant is a Revenue expense that you can deduct from income, which I’d list on the tax return as (legal, managaement and other professional fees), which is under the property expenses section on form SA105 (Box 27).
Going forward, when the carpet/shower etc need replacing again due to wear & tear, then certainly they are then Revenue Expenses. Capital expenses are property improvements, rather than keeping/ maintaining it in the same condition
Unless this is part of a much larger refurb or youve gone from a basic original to a high spec replacement, I would probably put these items through as revenue as they are replacements of existing items.
I am with David on this one.
HMRC could argue that the costs are capital if the house was bought more cheaply because it was not in a state that could have been rented out, but it does not sound like they were major works.
All revenue costs before letting can be claimed as a deduction on day 1 of the first letting as expenses preparatory to rent, as long as the decision had been made to let it. Don’t forget costs such as mileage (to and from the property, to buy supplies etc) at 45p per mile, any council tax paid, untilities etc.
Couple of useful links: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/717616/Capital-toolkit.pdf
PIM2505 - Property Income Manual - HMRC internal manual - GOV.UK
HMRC also hold webinars for new landlords on what is allowable.