In this article our guest writer, Amer Siddiq from Tax Insider will provide you with an insight into offsetting maintenance costs, in the first of the two part series. If you have ever read and tried to digest topics on this very subject, then you will have noticed that the following phrase is consistently mentioned, ‘wholly and exclusively’. HMRC state that, ‘You can’t deduct expenses unless they are incurred wholly and exclusively for business purposes.’ To put it simply, this statement means that if you incurred an expense that was not used for the purpose of your property, in any way at all, then you cannot offset the cost. Whenever you incur a cost for your investment property, always ask yourself, ‘has the cost been incurred wholly and exclusively for the property?’ If you can answer YES to this question, then it is highly likely you will be able to offset the cost against your property rental income. But what if the cost is not wholly and exclusively incurred for property? Sometimes you may incur a cost that is not used ‘wholly and exclusively’ for your property. However, a portion of the cost has been incurred for your property. For such situations HMRC provide the following guideline: ‘Where a definite part or proportion of an expense is wholly and exclusively incurred for the purposes of the business, you can deduct that part or proportion.’ What this effectively means is that you need to determine what part or proportion of the cost is attributed to your investment property. This is because you cannot offset the entire cost. The following case study will help to illustrate this guideline. Where costs are not wholly and exclusively incurred for property Bill has an investment property. The bathroom is looking rather ‘tired,’ so he decides to re-tile it completely. He goes to a local tile shop, where they have an offer of 12 square metres of tiles for £240. However, he only requires seven square metres for his investment property. After some serious head scratching he appreciates that the deal is an excellent value for the money and too good to miss. He therefore purchases the tiles. He decides to use the extra 5 square metres of tiles in his own house. This means that the entire cost has not been incurred wholly and exclusively for the property. However, a portion of the cost, i.e. 7/12ths, has been incurred wholly and exclusively for the property. He may therefore offset £140 (i.e. 7/12ths of £240) against his rental income. Costs of maintenance and repairs Once you have purchased and successfully let your property, any maintenance costs incurred that help prevent the property from deteriorating can be offset against your rental income. It is very likely that at some point you will have to carry out some maintenance work to keep your property in an acceptable state of repair. When this happens, you will be able to offset the cost against your property income as long as it is not a capital improvement. A capital improvement is when work is carried out that increases the value of the property. Maintenance cost John is informed by his tenants that water is leaking from the upstairs bathroom into the downstairs living room. He calls a plumber to repair the damaged bathroom water pipe and also hires a painter/decorator to redecorate the damaged ceiling. The entire cost of the work is £300, and it can be offset against the rental income. Typical maintenance/repair costs The following list details typical maintenance/repair costs that you are likely to incur and which you can offset against your rental income:
- Repairing water/gas leaks, burst pipes etc
- Repairing electrical faults
- Fixing broken windows, doors, gutters, roof slates/tiles etc
- Repairing internal/external walls, roofs, floors etc
- Painting and redecorating the property
- Treating damp/rot
- Re-pointing, stone cleaning etc
- Hiring equipment to carry out necessary repair work
- Repairing existing fixtures and fittings, which include: radiators, boilers, water tanks, bathroom suites, electrical/gas appliances, furniture, and furnishings, etc.
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