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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am calculating my income and expenditure to complete my

Resolved Question:

I am calculating my income and expenditure to complete my self assessment tax returns. I and my wife own 3 houses which we rent. in the last tax year, we bought two of the three houses. I have three questions relating to this situation: a) can I include the costs of the purchase of these properties (ie solicitors fees, valuation fee to set up the mortgage ) or are these costs which I must include when I come to sell my property and want to offset it against capital gains? ( I guess I cant claim against them twice!). And b) in the process of buying these houses, two properties fell through on which I paid valuation costs to mortgage companies, and fees to my solicitor to buy them. Am I able to include these costs as part of the process of setting up the properties to let? c) Finally, I am doing the paperwork myself, will I be expected to submit a spreadsheet detailing the expenditure taken place relating to the setting up and upkeep of these houses? (I have nearly all receipts, and those few I dont have records on bank statements, and have set up a spreadsheet in any case) Many thanks, ***** *****

Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

.

a You can claim mortgage arrangement fees against rental income (some spread it over the loan period) but I doubt the valuation fee will be allowed. It would need to be added to the cost of the property along with the legal fees and stamp duty, survey fees, disbursements, etc. I've seen the valuation fee added to a mortgage arrangement fee and the whole lot claimed.

b I've heard from people I know who work in tax of taxpayers/clients claiming them where they already had a least one rental property and, therefore, an active property letting business when those costs were incurred, so they are seen by some people as the cost of doing business. Quite a few expenses incurred existing property letting business become deductible whereas such expenses incurred before income is being generated are not.

c You should keep a record of all improvement expenditure including receipts and invoices and when you sell a property. You should also keep a record of repairs and maintenance and other expenditure which you claim against the rental income.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Thanks a lot, but just to clarify a couple of points:

a)Am I correct in thinking if I were to claim against tax using the house value, I need to DECIDE whether to do this against this years RENTAL income, OR against CAPITAL GAINS tax ? Or can I claim the house purchase price and stamp duty and solicitors fees against this years rental income, and ALSO use all this to deduct from the selling price when I come to sell it and want to claim against capital gains?

I am thinking, I will need to get a new mortgage every two years (as they are fixed price years, and need to be re started), so I am assuming I should be able to claim against the cost of getting this up and running each time I need to ? ie I need to claim against valuation/mortgage arrangement and the cost of solicitors to sign off the mortgage: could I therefore claim these expenses now against the two houses which I bought this tax year? (My wife and me bought a house last tax year, ( which I bought in her name, so she is claiming against the whole of the rental income house) .

Expert:  TonyTax replied 2 years ago.

a You cannot claim the cost of the property, stamp duty, legal fees etc against rental income. They are capital expenses which you offset against disposal proceeds to work out the capital gain or loss. You cannot claim any expense twice. If you could, nobody would ever pay tax on rental income.

b Each time you renew the mortgage, you can claim the mortgage arrangement fees against rental income.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15883
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and 3 other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Sorry, just one last thing, which I wasnt clear about in your first repy: I mentioned I had spent money (over 1500) on the purchase of three (in fact) houses , all of which didn't go through (one, the mortgage offer came later than the deadline given by the owner, second, I had to apply to brighton council permission to change status from private dwelling to rented HMO and it was rejected, so I didnt go ahead, and the final one, I opted out sfter mortgage offer had come in,as I was being too stretched. In addition, with one of the houses I did buy I paid valuation mortgage offer which - it turned out - wasn't going to come through in time , so had to go with other mortgage offer) Each house had valuation costs and some solicitors fees in order to do searches etc. I have been renting with my wife 23 years, (it is only in the last two that we sold in london and bought three in brighton)

Q: Surely these costs are financial losses, and therefore should I not be able to claim against them ? (total loss from these failed purchases is 1800 approx)?

Expert:  TonyTax replied 2 years ago.
I did deal with that point. Here is original answer to your point b on abortive costs:

b I've heard from people I know who work in tax of taxpayers/clients claiming them (abortive purchase expenses) where they already had a least one rental property and, therefore, an active property letting business when those costs were incurred, so they are seen by some people as the cost of doing business.

Quite a few expenses incurred existing property letting business become deductible whereas such expenses incurred before income is being generated are not.

Take a look at the first search result here article in the leading tax newspaper on abortive purchase costs.
Customer: replied 2 years ago.
Thanks , the article was v useful, I just need to confirm, regarding including costs up the mortgages: these costs will need to bd paid back at the end of the mortgage term. This could I pay the mortgage offbe this year as the two year fixed rate expires this year and I will need to pay mortgage company back these costs on top of the loan amount . Am I correct in thinking that I should only really claim costs at the point when I actually pay ( ie when I pay the mortgage off) therefore I shouldn't be including them in last years tax return?
Regards
Adam
Expert:  TonyTax replied 2 years ago.
Take a look here view on mortgage arrangement fees. As you will see, there are several ways to claim them. You just need to take a view on it and be consistent. As the article says, HMRC have yet to put down some hard and fast rules but there is no doubt that they can be claimed. It depends how bullish you want to be about it.

If I were you and the fees were due to be paid at the end of the term, I'd claim them in the tax year when they were physically paid. If they were paid back monthly with the mortgage payment, I'd claim them as when I paid them.
Customer: replied 2 years ago.
Thanks a lot , all v useful!
Expert:  TonyTax replied 2 years ago.
Thanks and good luck.
Customer: replied 2 years ago.

cant see where I need to rate the answer?

Expert:  TonyTax replied 2 years ago.

Click on one of the smiley faces on this post.

Customer: replied 2 years ago.

there are no smiley faces on this post?

(and I am not sure how somehow I havcebeen piut onto monthly subscription without being asked, - not your prob Ill take it up with just answer (!)

Expert:  TonyTax replied 2 years ago.
You appear to have rated my answer so thanks .

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