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bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I require some advice relating to tax and rental income. I

Customer Question

I require some advice relating to tax and rental income.
I owned 2 rental properties (no mortgage) and my home property (no mortgage).
I then remortgaged my home on a buy to let basis in order to purchase a new home elsewhere. My remortgaged home then became a rental property. It wasn’t ready to rent immediately and for a prolonged period (10 months approx) it was vacant whilst I carried out various improvements as well as an essential repair to the roof. The property was furnished hence it wasn’t eligible for empty property relief for council tax. I also had to pay building and contents insurance. I would like to know if I can:
• Offset the council tax I paid out during the time the property was vacant
• Offset the insurance I paid out during the time the property was vacant
• Offset the costs of the roof repair which took place whilst the property was vacant
I would also like to know if I can offset the costs associated with arranging the remortgage, principally:
• The mortgage broker’s fee
• The valuation fee for the remortgage
• The lenders arrangement fee
• The legal expenses
• The monthly interest payments on the loan
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your conundrum.
There are really two parts to your question. However, let us look at basics where 'Which' has some excellent guidance:
'Allowable expenses a landlord can claim
The most common types of expenses you can deduct are:
Water rates, council tax, gas and electricity
Maintenance and repairs to the property (but not improvements)
Contents insurance
Interest on a mortgage to buy the property
Costs of services, including the wages of gardeners and cleaners
Letting agents fees
Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
Accountant’s fees
Rents, ground rents and service charges
Direct costs such as phone calls, stationery and advertising for new tenants
The expense should be incurred wholly and exclusively as a result of renting out your property.'
This does not bring us much further forward although the information is useful to tuck away for the future.
Elsewhere the Property Tribe web site has the following opinion from Staphen Ray FCA:
'Mortgage and loan arrangement fees are also allowable as a revenue expense. Note: it does not matter if the borrowing is secured or unsecured (or even on what it is secured) – it only matters if the funds were used for business purposes'
That would appear to cover the second part of your question and the last bullet point is in the first quote viz: 'Interest on a mortgage to buy the property'
Tolley Taxation web site goes exhaustively into the ups and downs of pre letting expenditure with the following pithy observation:
'The answer is that it can, so long as it meets the requirements of ITTOIA 2005, s 57. This reads as follows:
s7 Pre-trading expenses
(1)This section applies if a person incurs expenses for the purposes of a trade before (but not more than 7 years before) the date on which the person starts to carry on the trade (“the start date”).
(2) If, in calculating the profits of the trade—
(a) no deduction would otherwise be allowed for the expenses, but
(b) a deduction would be allowed for them if they were incurred on the start date,the expenses are treated as if they were incurred on the start date (and therefore a deduction is allowed for them).
That would appear to cover the first two bullet points of the initial bit of your query just leaving the roof repair item. Now this is a moot point. Some experts feel that this is capital expenditure and should be added to the original purchase price in determining the ultimate gain on the property on sale. However our club some years ago came into exactly the same situation. Our pro bono auditor was a Price Waterhouse man and he consulted their tax department. They advanced the view that as the club had always had a roof its replacement was allowable against income and we so claimed. The Inland Revenue as they were then batted not an eyelid and it went through on the nod so to speak.
I do hope I have helped you in that brief canter through possible allowances against property rental income.
Customer: replied 2 years ago.

Hello,

Thank you for your answer. Could you clarify one point please. Can I still offset the council tax, buildings and contents insurance against my tax even though the property was vacant and hadn't been previously rented out? Would this apply to the loan interest repayments too?

The roof repair was really just a repair as it was only a section of the roof which had been badly leaking which really needed repaired.

Thank you

Expert:  bigduckontax replied 2 years ago.
These items would appear to be covered by s57 and thus allowable, providing, of course, that the 7 year time limit has not been breached.
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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3111
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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