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We have a client who lets out a studio but has recently

Resolved Question:

Hi
We have a client who lets out a studio but has recently stopped renting it out as there some repairs that needed to be done to it. Some of the expenses were for restoring the studio to its previous condition. However, some of the expenses were paid out to improve the studio as the landlord wants to shortly let it out again.
Can he claim 100% annual investment allowance on capital items such as a sofa bed, sink, cooker hood, hob, tap, shower door, dishwasher, mattress, fridge and an oven as well as 10% wear and tear allowance?
Finally, are some of these items improvements to premises and therefore can be offset against the disposal proceeds to reduce his capital gains tax liability when the landlord sells the property but how do I differentiate between capital items where 100% annual investment allowance can be claimed and improvements to premises which can be offset against the disposal proceeds upon sale of the property?
Thanks
Kind regards
Paul Simler
Submitted: 7 months ago.
Category: Tax
Expert:  Sam replied 7 months ago.

Hi

Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer.

NO he cannot claim for any of these items as as some are capital allowances and some are not, but as this relates to the rental of a property then there are strict rules on hat can be claimed

sofa bed can only have as a renewals basis and like for like when it needs replacing (so nothing for initial purchase)

sink no as no tenants in situ but if replaced whilst tenants in then from the rental income

cooker hood, hob, tap, shower door same as above - no rental income as tenants not in situ

dishwasher renewals basis

mattress renews la basis

fridge renewals basis

oven renewals basis

And 10% wear and tear allowance no longer exists see link here

https://www.gov.uk/government/publications/reform-of-the-wear-and-tear-allowance/reform-of-the-wear-and-tear-

allowance

Improvements unless a total situation such as totally new kitchen or totally new bathroom are the only way that capital improvements can be off set against the capital gain, general improvements are allowable if you have a tenant in situ if not, then these are lost as no rental income to offset against and merely putting the property (studio ) in a position to be letable.

With rental income you cannot claim annual investment allowances ever I am afraid this is for trade income only

Thanks

Sam

Customer: replied 7 months ago.
Could we not say that these capital items such as the sofa bed, sink, cooker hood, hob, tap, shower door, dishwasher and fridge were purchased on a renewals basis as the property was previously let out but it is now being completely refurbished with like for like items in order to be let out again?He also received some rental income during the tax year before it was left vacant and so does that change anything?Are you saying that these capital items can be offset against the disposal proceeds in order to reduce the capital gains liability once the property is sold as he can offset these capital expenses against some rental income he had received during the year?ThanksPaul
Expert:  Sam replied 7 months ago.

Hi Paul

In response to your questions

Could we not say that these capital items such as the sofa bed, sink, cooker hood, hob, tap, shower door, dishwasher and fridge were purchased on a renewals basis as the property was previously let out but it is now being completely refurbished with like for like items in order to be let out again?

I have said yes to the sofa bed mattress fridge and oven and dishwasher as the renewals basis

The sink no as no tenants in situ and a fixture and fitting so no

Cooker hood, tap hob shower door not allowable as these are just repairs/replacements and no tenats in situ

He also received some rental income during the tax year before it was left vacant and so does that change anything?

No makes no difference its all about whether there was a tenant in when these repairs took place for them to be allowable unless they fall under the renewals basis such as furniture and movable items

Are you saying that these capital items can be offset against the disposal proceeds in order to reduce the capital gains liability once the property is sold as he can offset these capital expenses against some rental income he had received during the year?

No I am not - I am saying that which falls under the renewals basis can be claimed when a replacement is made but NOT the initial purchase (which you are currently asking after) and then will be offset against rent, but you have to have a tenant in situ at the time

And general repairs maintenance and other replacements are only allowable when you have a tenant in situ

You have no capital improvements UNLESS you completely re haul a room such as bathroom and kitchen or roof or central heating or double glazing - these are capital improvements

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13810
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 7 months ago.
Thanks very much Sam. It is very clear.

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