Self Assessment Question - Expenses on 2nd property

Paul_HDLover

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Hi All, boring tax question alert.

Lets say after calculating all my incomes for this year I am due to pay £5k to HMRC, this includes my salary and income from my second property + interest on my investments less tax allowance, less mortgage interest (2nd property etc).

Ive got a situation in the property i rent out where by the boiler has been really causing problems for the last 2 years. We have spend a fortune on repairs and many hours waiting in for repairs. Im thinking about getting it replaced with a new model as there is a gap in tenancy about to come up.

My question is, assuming my tax due for this year i.e. 2013-2014 is forecast to be £5k, would the cost of the boiler - lets say £3k be deducted from the tax due figure as it is an expense on a second home?

Someone told me that it would be along with any other expenses on that property but this seems strange to me. Basically I could pay HMRC £5k or I could pau them £2K and get a new boiler in the flat. Seems a no brainer if tht is the case.

Thanks for any help you can offer. :smashin:
 
If you bought a boiler for £3k, your profit would be reduced by that amount. As you only pay 20% tax on profit, your tax would be reduced by £600.
 
Not sure 100% on this but I think you can only offset the expenses on a property against the income derived on that property ie not your total tax bill.
 
If you bought a boiler for £3k, your profit would be reduced by that amount. As you only pay 20% tax on profit, your tax would be reduced by £600.

Mostly correct. Your taxable amount would be reduced by £3k assuming you are allowed to claim it. If you're in a higher tax bracket then the tax saving would be at the higher rate.

Example assuming you're on salary (PAYE): You earn £50k PAYE so any revenue above £34,271 and up to £150k is taxed at 40%. Net rental before including the cost of replacing the boiler is £10k. Taxable income is £50k + £10k = £60k. If you deduct the boiler then it's 57k. In this case you're saved yourself £1200 in tax.

You need to check if the boiler counts as capital expenditure or not. My accountant handles it so not sure off the top of my head but if you claim a flat 10% of rental as wear and tear then you may not be able to claim the cost of replacing the boiler since it's a capital (i.e. Long term) expenditure.

A quick search on the web suggests that it's not deductable in your circumstance:

The costs can only be offset against income tax liability if it meets the rules:

1. It must be a like for like replacement. HMRC accept that regulations now require condensing boilers. But it must not have a larger capacity or be part of an increase in system size eg more radiators etc.

2. Its fitment must not form part of a larger building project such as an improved kitchen or added utility room etc.

3. The work must not be done immediately following purchase of the property.

4. The work must not be done during a period when the property was not rented or not available to rent.


In short, if you are replacing a broken boiler for sitting tenants then you can claim it. If you're changing it to make it more appealing to future renters then you can't (i.e. It's a capital expenditure).

Not sure 100% on this but I think you can only offset the expenses on a property against the income derived on that property ie not your total tax bill.

Not true, your investment costs can be offset against your entire taxable income. This is want people do when they negatively gear investments.
 

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