Re: Is this an allowable deduction?

On Sun, 08 Jun 2008 11:22:19 GMT, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote:

zeebop wrote:

On Sat, 07 Jun 2008 21:20:53 GMT, Ronald Raygun
<no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote:
zeebop wrote:

I rent 2 of 3 rooms in my own home. Hence 2/3 of my expenses can be
decucted. (I am not in Rent a Room Scheme)

Do you mean you've already decided you don't want to be in the
rent-a-room scheme, or that the rental income is more than the
limit?

I've decided I dont want to be in the Rent-A-Room scheme. My income is
around £8.5k.

That's above the limit anyway, so it's just as well you don't want
to be in it, because you can't be.

Not arguing the point or anything, but I understood you were allowed
to be in R-A-R-S, just that, clearly, you are unable to claim back
anything over the limit.


I was wondering if replacing an aging TV in the communal lounge is
acceptable. Is that 'maintenance and repair'?

Yes, it is, but only if the replacement is equivalent. Suppose the
old one is an ordinary one, of which a straight replacement might
cost £300, but you replace it with a whizzo huge flat plasma screen
model costing £1500, then only £300 of the £1500 could be treated as
"repair" and set as an expense against income, while the remaining
£1200 would have to go on the capital account.

Only if the old one is also a whizzo huge flat plasma screen model,
could the entire £1500 be counted a "repair".

Not sure how to define equivalent. They both cost the same new,
£1,500. How do you mean the remaining £1,200 would have to 'go on the
capital account' Sorry for my ignorance, but how/what is the capital
account treated in terms of calculating my taxable liability.

In any business there are two kinds of expenditure, namely one-off
and recurring. Likewise with income. You can set recurrent expenses
against recurrent income for income tax purposes. You can set one-off
expenses agaist one-off income for capital gains tax purposes. But
you can't generally mix them.

Suppose you were to buy a flat to rent out. The cost of buying it and
of furnishing it cannot be set against rental income, only against the
proceeds when you eventually sell the place. This is the capital account.

I see. I think.... :)


It is the second point I am unsure of:

* the amount you sold the old one for (if you got anything for it)
* anything extra you paid for a better one

So new TV (£1,500) minus amount for old TV (£0), minus anything extra
I paid for a better one - I guess this is the £1,200 (given I could
buy my old one 2nd hand for £300). All very 'finger in the air' maths
this....
So the deductable amount is £300?

My mind boggles at how much people spend on bloody tellies these days.
In my example I assumed £300 would be the *new* cost of an ordinary
telly, having assumed that the old one was also "ordinary". You hadn't
said before what the old one was, but now it seems it too was fancy,
but not quite as fancy as what you're proposing to replace it with.

Forget the condition or second hand value of the old one. Also forget
what the old one cost new when you bought it. What you should be
considering is what it would cost to replace the old one with
a new one *of the same kind* or nearest equivalent. You said elsewhere
that the old one originally cost £1500 too, but *now* £1500 buys you
something better, and one just like the old one might only cost £1000
new now. This means you could deduct £1000 as a renewal, and the other
£500 would go on the capital account.

See the example of Malcolm and his washing machine near the bottom of
<http://www.hmrc.gov.uk/manuals/pimmanual/pim3200.htm>


Again, to save me having to work this out everytime I replace an
appliance or similar, I think I will go for the WTA route, to receive
around £850 WTA each year.


Or is this something that comes under the 'wear and tear' or
'renewals' allownace?

Yes, it is. The TV is "contents".

Ok, I see, it looks like most appliance replacements will fall under
this. Not sure where the official HM Revenue price list is though for
me to work out how much a direct replacement for my 15 year old
Zanussi F/Freezer is though.......

There isn't an official price list. You need to be reasonable about
these things. Fridge freezers don't all cost the same. There are
cheap ones and expensive ones, basic ones, fancy ones, different
sizes, etc. There are likely to be on the market now several models
of different manufacture which are roughly of the same specification
as your old one, and chances are they will all cost roughly the same
as each other. If the one you buy is one of them, then the full cost
of replacing it (minus whatever, if anything, you get for the old one)
can be deducted as a renewal. If what you buy is significantly more
expensive, then the price excess cannot be included in the deduction.


Thats me being a little sarcastic, sorry. Again, I will go the WTA
route.

Which of these two methods would yield a larger reduction? New TV
£1,500, old TV not sold.

Do not base the decision on one item. Take a long term view.
If your rental income is (say) £6000 a year, the wear and tear
allowance means you are treated as if you were spending £600 a
year on repairs and renewals of contents (even if you aren't).
So if *on average* you expect to be spending more than £600 a
year on repairs and renewals of contents, then you would be
better off avoiding the WTA method and using actual costs
instead. If less, obviously WTA is better.

I like the sound of WTA. :)


That sounds like good advice. I would say typically my rental income
is £8.5k
Although not sure about the section that says *less any costs you pay
that a tenant would usually pay* - what costs are those?

*The allowance is 10 per cent of the 'net rent' - this being the rent
received less any costs you pay that a tenant would usually pay.*

Things like council tax and utilities. If your tenants pay you a "pure"
rent and there is a separate kitty for council tax and utilities, then
the net rent is this pure rent. But if your tenants pay you an all
inclusive rent, then you deduct utilities and council tax to arrive
at the net rent. Insurance (for buildings and for landlord-provided
contents) is normally included in net rent, but insurance for the
tenants' own belongings is not.

Hm, thats a shame, so from the £8.5K, I would need to deduct approx
£3k, so my WTA allowance will be £5.5k ish (£550).
I need to see if there are ways I can increase this. Although still
probably better than the renewals route.


I'm interested in getting this right as the advice reads 'Once you've
chosen which of these allowances to claim for a property, you can't
switch between them from year to year.'

Which makes it sound like I can never change my mind?

That is correct, you cannot change your mind. But if your rental
business involves several properties, it's OK to use wear-and-tear
basis for some properties and actual repair/replacement basis for others.

That sounds good then, I think the 10% route would probably be the
best bet long term. Maybe this is most popular with most people?

It is with me.

If you withdraw a property from your rental business and later
re-introduce it, then you can use a different basis. So in a limited
way you *can* change your mind. In the case of your home, you would
have to stop renting out rooms altogether for a bit before starting
up again.

In addition if I were to buy another house and rent out all room in
that house, are my expenses 100% deductible?

Yes, all expenses relating to *that* house would be deductible,
except to the extent that they relate to contents repairs/renewals
if you are operating WTA basis for that house.

I thought repairs were 100% deductible, it was the
replacements/renewals that werent?

Yes, sorry, my mistake. You can deduct repairs in any case. It's only
renewals which are different. If you do not operate the WTA scheme, then
you can deduct the cost of renewals and of repairs. If you do claim WTA,
then you cannot deduct cost of renewals, only of repairs.

And can (must?) I add income and expenses from my own home and the new
house together or are they strictly separate? I think they are to be
pooled together.

They are pooled together in the sense that you only have one rental
business no matter how many properties it involves. But because you
can decide on a house-by-house basis whether to go for WTA or actual
repair/renewals, you in effect have two sub-pools.

I see, so the income is one big pool,

Well the income is two sub-pools too. One pool contains all the income
from unfurnished rental and from furnished rental from properties
on which you have decided not to claim WTA, the other pool is for
furnished rents on those properties on which you are claiming WTA.
The size of the 2nd pool is used to determine how much WTA you can
claim. Then they are combined.

but I calculate the WTA or
renewals on a per property basis. My main concern was to make sure I
could include any losses from one property and include that in the
total.

Yes, all expenses are combined and set against combined income.

Thanks, any and all properties will be furnished and based on the WTA
method.
.

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