As a UK Private Landlord, If I already have another BTL property 1 let to a tenant 1, then I later acquire BTL Property 2, but it is unoccupied for 18 months due to refurbishments before being let to tenant 2, can I safely treat the 18 months of BTL mortgage payments (and the arrangement fee) as “residential finance costs” - because Property 1 was already occupied before Property 2 was purchased. And can they be subsequently brought forward to reduce tax bill in?
[Edit note BTL mortgage is interest only so all mortgage payments are interest and can normally be considered financial costs - but I’m specifically asking about payments on 2nd BTL before its first tenant ]
Note the 18month delay was due in part to being messed about by a rogue tradesman, whom we successfully took to court via MCOL, and collected compensation via HCEO - so is well documented.
No. You can’t claim capital costs only the interest part of mortgage payments for which there can be a 20% tax credit
You need an accountants advice to confirm but my understanding is that if not fully used in a given tax year to offset landlord income then the tax credit can be carried forward to later years
Google ‘What tax relief can I claim on my rental property? Money supermarket ‘
[Edit note BTL mortgage is interest only so all mortgage payments are interest and can normally be considered financial costs - but I’m specifically asking about interest payments on 2nd BTL before its first tenant ]
It was actually a qualified accountant that didnt include the payments on earlier tax returns because they said we didnt have a tenant in the 2nd property - and I’ve only just noticed as the account has gone AWOL and I’m doing it myself this year (on behalf of spouse) and noticed this omission.- , and so now I have to submit Amendments and back claims - I’ll call HMRC in the morning to confirm but I think as long as you have one property up-n-running then pre-letting costs for the 2nd property can be considered if they are “wholly and exclusively” for the “renting business”?
I seem to remember that this question has come up before. So got one property, carry on with another ,all costs of planning and work to do it up are set against tax. I am Not referring to the BTL loan though
Agree totally. I ‘think’ it depends what is meant by ‘doing it up’ - Refurbishment/maintenance to bring back to reasonable standard ok but costs of capital improvements like an extension (or replacing a washing machine with a washer dryer which is the example in guidance) wouldn’t be if I’ve understood it right
Correct adding a kitchen on EG or a loft conversion is a capital cost and can be set against capital gains on selling. Decorating or putting replacement doors in and so on ,can be set against the yearly income
not sure what you mean by “EG”, but as a kitchen would already exist in a property I’m not sure how one would be added. Kitchen refurb is unlikely to be a capital improvement.
This is true. The key is to know which are set against tax now and which are to be held until the asset is disposed of and set against CGT. It’s not always obvious.
Bear in mind that you can carry forward losses on rental properties for many years. This is especially useful in the years after a refurb.
ah “adding a kitchen on for example”. Get it now. Yeah the building fabric for the extension would work as capital as would any architect’s/building regs fees. What wouldn’t in that scenario would be anything inside the walls of the dwelling e.g. the kitchen cabinets, appliances etc.
Doesn’t it also depend on the quality etc? If a) before there was a kitchenette somewhere else in the property and it gets replaced by a full size kitchen, or b) before there was a basic kitchen and it gets replaced by a luxury one costing a lot more, those would be considered upgrades adding capital value?
Whereas like for like refurb would be part of running/maintenance costs for the business
no, a kitchen is a kitchen. Unless you are adding something that wasn’t there before, it won’t count. Change your freestanding £200 cooker with a NEFF top of the range built in smart oven/hob and no that’s not capital even if it costs £2000.
“Kitchenette” to kitchen is different because you will almost def be adding appliances, for example, that weren’t there before. Like I said, it’s not always obvious.
When we did a refurb on a property the wiring was 1930s and so needed an upgrade which resulted in chasing wiring everywhere and therefore replastering. None of it was capital because all houses have wiring. If we’d added circuits then yes, that part could have been capital.
40 years ago I doubled the size of a shop I owned. I distinctly remember the accountant saying I could not claim the cost of the materials that year or any year till I sold it .I still own it but have lost all the receipts. The cost back then was peanuts compared to building today
better not to be capital as you get tax relief in that year Many years ago we got 10% tax allowance for replacements even if we only replaced or put in a chair. Good old days , when landlords were appreciated, those days are gone . Only now worth it if you are really “canny”
HMRC tax manual PIM2505 covers allowable pre-letting expenses, which would include the 20% allowance on mortgage payments and any other revenue expenses. They can be claimed in the tax year when the first let begins.