Thank you. We bought a building in 2001 and improved it substantially to use as an FHL accommodation business. We sold at auction in April, 2013 at a loss. Over the years we claimed Capital Allowances on £34,000 which had been invested in improvements. Total cost of building plus improvements £122,000. Net Sale Proceeds: £80,000. Our question is 'What do we do about balancing charges on that £34,000?
We need a little while to answer your questions. Can you put the above reply in an email to us so that we can compile our response inmail?
Ok...we'll see what we can do . Can we get back to you if we use a different computer? If so, how....can you give us a link?
You just log onto the website www.JustAnswer (.co.uk or .com) and log in using your user name and password ***** then you on top left will be My Questions and you can gain access to this question thread. But you would need all this information to file the last rental income position with HMRC and the capital gain position for 2013/2014 (or 2014/2015 if the property sold after 06/04/2014) Thanks Sam
Thank you . We've discovered the email link.
Many thanks for your questions, I hope this gives a start to providing answers.We bought the building £72000 (incl. expenses of purchase) Nov 2001 from a private residence. We intended to use it for groups of friends, but soon realised that we would need to go commercial to support the cost of necessary improvements. By Jan 2005 we had plans accepted for substantially new layout inside the building to provide fire escape routes (claimed as expenses in that tax year '05/06), and paid for new internal walls, renovated kitchen and shower room, new central heating, new studio flat for FHL - living/ kitchen area, bathroom, stairs, additional rooflight, rewiring and re-plumbing and carpet and a new mains line from the road to allow separate metering. And all in a grade II listed building with thick stone walls. Professional costs were £41000 in total, materials for our own work another £10000, grand total £122000 (all figures rounded for clarity).FHL was started in '05/06 and continued until the building was sold in mid-April 2013. FHL conditions were met in that period.FHL allowed me to claim capital allowances OR choose a 10% wear & tear regime. I chose the first, as capital costs were necessary for plant and equipment to set up the business, and the 10% seemed too fixed a number to reflect possibly wildly changing circumstances. We claimed capital allowances for rewiring and re-plumbing, new furniture and kitchen appliances, blackout blinds for rooflights, new rooflight, costs of converting a plumber's pipe store to a good bicycle store for guests. We included things to make the courtyard garden attractive - garden furniture, long-lived climbing plants, trellis to support them up the high walls. We uncovered a magnificent old fireplace, so claimed for timber flooring and tiles to front that. Total capital claimed on was £34000, beginning '05/06. We were allowed WDA on that sum as follows: '05/06 25% => 8500, leaving 25500'06/07 25% => 6375, leaving 19125'07/08 25% => 4781, leaving 14344'08/09 25% => 3586, leaving 10758'09/10 20% => 2151, leaving 8607'10/11 20% => 1721, leaving 6886'11/12 20% => 1377, leaving 5509'12/13 20% => 1101, leaving 4408 ----------total allowed £29,592.We sold the building for personal reasons at a bad time. It went to auction as a private house, yielding £80,000 net - a very substantial loss on £122,000 invested. However we see that IR has allowed us a lot.
Please ask for more detail as necessary.
Thank you. We've looked at your response in a very busy day, but will get on to this forthwith!
We'll get back to you as soon as we can.
Hi Sam,Thank you for your guidance.1. The work to satisfy Fire Regulations was allowed by HMRC Preston Office (our personal visit - a rare pleasure these days) as a day-to-day expense for the year '05/06. That included, and I quote, "work to satisfy Fire Regs is 'Expenses' and includes fire escape, hole in wall, moving [some of] the walls around, consequential ceiling work, new staircase, refinishing, redecorating, and any necessary rejigging of electrical and plumbing stuff". The rest of our capital expenditure seemed to be tacitly allowed as pool for Cap.Allowances. Hence, I believe, arises some of the confusion you point out. This has not yet been thoroughly resolved in our minds but we will proceed as you suggest.
2. Recalculating the work for capital improvements we get £23,000 to add to the building cost £72,000 = £95,000. FHL expenses for '05/06 are now £40,000 including rates, marketing, power, etc., including work for Fire Regs (£31,000). Furnishings are now separated in case we change to 10% wear & tear in revisits. No previous years' expenses are now included - maybe we need to look at Property pages again for those years.
We will gradually revisit all years Returns from '05/06.
3. We expected that an auction was surely a publicly advertised marketplace: various bidders were interested, and the process went on until all but one had dropped out. Do you think that referencing the auction house would satisfy HMRC ?
Thank you again.
Thank you for alerting me to problems with our use of capital allowances. This has been essential in the framing of our Capital Gains Return for the year just past, and will be in our restating of Property income for previous years." . . . Then for furnishing you have either the wear and tear or renewals allowance . . ."I have been talking to the HMRC SA help phone line (when they eventually rang me back) and find that my suppositions about the availability of allowances in respect of capital used in the 'trade' of FHL are in fact partly justified. We can indeed use those allowances for capital other than capital used to improve the building, fixtures and suchlike, eventually saleable as part of the building. Our mistake was to include fixtures in the list. The proposed 10% wear and tear allowance is available for furnished lettings generally but is excluded for furnished holiday lettings. See PIM 4105 paragraph Capital Allowances. There have been no changes to the rules on allowances for capital used in FHL during the period of interest '05/06 to '13/14. Of course we have now to work over the Returns from '05/06 pruning, and then write the results in a letter to a special Tax Office. " . . . Its known that auctions can often see property sell for less then they could fetch on a normal open market place . . . its about HMRC being satisfied that you actually got the true market value for this property . . . "We need to consider this with an estate agent. Thank you for raising it.Best regards,John Morton
You are very welcome and I am glad that you found that HMRC supported some of yoru thought process and that you alos found Just Answer a useful tool.
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