Extortion to pay their own management company!

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I had to review the service charge breakdown for two apartments in one development this year, as this and last year service charges have risen to almost double from all previous years.

What I found is interesting and these are the biggest items;

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What is an Allowable Expense?

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Tax Return 2016-17:

With some costs it’s very easy to decide: a repair to a drain, downspout or roof tile are all allowable expenses, but what about replacing a broken single glazed window with a new plastic frame and double glazing, what about decorating and installing a new kitchen before the property is let?

Before you can decide on these matters in accord with the HMRC rules, the actual situation needs to be defined. For example, the rules differ if the landlord is not resident in the UK, if the property business is run as a company, or if the properties are let as holiday homes, as opposed to conventional residential lettings.

Where the property is owned jointly between a married couple or civil partners, then income and expenses must be split on a 50:50 basis, but if the property is owned unequally then HMRC form 17 “declaration of beneficial interests in joint property and income” must be completed. On the other hand, where joint owners are not married or civil partners, the income can be split any way they choose.

When the letting business consists of more than one rental property, all income and expense are pooled as one business operation, and any losses incurred in the early years can be carried forward and set off against future profits.

The “Wholly and Exclusively” test

You cannot claim expenses for items which are not used “wholly and exclusively” for the letting business. For example, the landlord’s insurance policy, the letting agent’s fees, or service charges on a leasehold are all obviously only for the business. However, purchasing a computer, or tools and equipment, such as an electric drill, will not pass the test as these will also be available for personal use.

The capital expenditure test

Capital expenditure is generally defined as spending on a fixed item in or of the property. An asset or improvement of “enduring benefit”, which increases the value of a property, one which lasts for more than one accounting period. This would usually be more than one fiscal year or 6th April to 5th April. Capital expenditure therefore is not allowed as an expense (revenue) item to be claimed against annual income, but rather something to be set-off against capital gains when the property is eventually sold.

So, whereas repairs to existing items would usually pass the capital expenditure test, improvements generally will not. We say generally will not, as there are some instances where a technical improvement could be allowed. The example used above for replacing a single glazed window with a modern double glazed one may be a case in point. A rotted window frame gives the landlord no choice but to replace, but if the only option is a new modern double glazed window, and these are now a minimum legal requirement, then this would usually be allowed. But, in the eyes of HMRC, every case is judged on its merits and there are many “grey” areas between repairs and replacements / improvements.

Generally, any fitted item added which was not there before, for example, a conservatory, is capital expenditure. Any like for like replacement is allowed, but where it constitutes an improvement the expense may have to be apportioned. For example, replacing a wooden worktop with a marble one would be an improvement on the old ones, so only a portion of the cost can be claimed, unless it can be shown beyond doubt that it is impossible to replace like for like.

It is very important to keep long-term records and documentation for capital expenditure as these items can be claimed against capital gains when the property is eventually sold, to reduce Capital Gains Tax ((CGT) liabilities.

Repairs and Maintenance or Replacement test

The HMRC definition of maintenance and repair is “work that restores an asset to its original condition”. This may sometimes means replacing part of the item within the property or as part of the structure, for example, kitchen units or the guttering respectively. However, this is on a like-for-like basis as explained above.

Any work the landlord does personally, or is the subject of an insurance claim, unless there has been a contribution, cannot be claimed against income. Typical maintenance and repair items would include:

• Broken fixture items such as toilets, sinks, baths, showers, so long as they are like for like replacements.
• Plumbing leaks and any water damage done, such as re-decorating.
• Replacing a broken boiler, radiators and heating system repairs.
• Outside work including ridges, flashing, gutters, chimneys and roof tile repairs. Treating for wet and dry rot and dampness.
• Regular maintenance items such as carpet cleaning, decorating and outside items such as painting, and broken windows and doors are all allowable expenses.
• A worn-out kitchen replacement can be classed as a repair providing the replacement is like-for-like.

An important principle is that the initial purchase of non-fitted domestic items such as furniture and appliances is not allowed as an expense item, but their like-for-like replacement is.

Now the 10% wear and tear allowance has gone items must be claimed for on a one-off basis, but whereas before the house had to be fully furnished, this is no longer a requirement. Domestic items that replacements can be claimed for include:

• Any movable furniture, including chairs, settees, beds, freestanding wardrobes etc,
• Soft furnishings such as carpets, curtains, cushions, linen, other floor coverings,
• Household appliances, including washing machines, fridges and freezers, TVs.
• Kitchenware such as Sause pans, crockery and cutlery.

All replacements items must be of a similar value, supported by a purchase invoice of the actual cost to the landlord, and the item must be available for use in the property permanently. Any improvement or “betterment” involved will not be claimable.

The “Grey” areas between Capital and Expenses

Items replaced with better (more expensive) replacements have an element of capital and revenue expense in them, therefore betterment will be involved.

With a long-leasehold property, a lease extension puts value on the property so is classed as capital expenditure, but if the extension is for 50 years or less, this can be claimed as an expense item.

With most of the items mentioned above it is routine to claim against rental income for these, but it’s a different matter when setting-up a new rental house, when then all items of initial expenditure are added to the asset itself as an initial purchase – a capital item – and therefore not allowable as an expense. This will be covered in the next (No 3) article.

This is the 2^nd in a series of articles designed to help landlords with their book keeping and self-assessment tax return for the tax year April 6^th 2016 to April 5^th 2017.

The Self-Assessment Tax Return, HMRC Form SA100, and Property income supplementary – HMRC Form SA105 – available here

Declaration of beneficial interests in joint property and income – HMRC Form 17

Filing your tax return online here

Free LandlordZONE Excel Tax workbook tool – download it here

Next Article in the series – What is an Allowable Expense?

HMRC is increasing its targeted compliance activity across the private rented sector through taskforce activity – see HMRC – Tackling the Hidden Economy

HMRC says it is encouraging those who have been non-compliant to come forward through activities such as the Let Property Campaign

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – What is an Allowable Expense? | LandlordZONE.

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Baroness Valentine wades in against landlords letting to benefits tenants!

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Baroness Valentine, a former banker and the wife of a venture capitalist, is the latest to have a go at private landlords (a common enough diversionary tactic to have a go at an unpopular group when you yourself are amongst the most privileged in society).

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Capital Gains and Losses?

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Hi I decided to sell one of my BTLs – I had four. I purchased the property in 2004 so have made a gain once I have taken off costs, and the annual allowance I will still have a tax liability.

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Government promote focus on housing in reshuffle

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Theresa May has taken the opportunity of a Cabinet reshuffle to promote her focus on housing by creating the Ministry of Housing, Communities and Local Government (MHCLG).

Following the appointment of Rt Hon. Sajid Javid MP as the Secretary of State for Housing

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Call for empty homes to be used by squatters.

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Squatters:

Guardian writer and London School of Economics (LSE) sociology fellow, Lisa Mckenzie, is calling for the homeless to take direct action, where the dispossessed should take over empty homes.

Author of a 2015 publication, “Getting By: Estates, Class and Culture in Austerity Britain”, Ms Mckenzie says: “Mass working-class squats of 1946 remind us that the UK housing crisis can and must be challenged by direct action.”

Mckenzie’s article follows a recent revelation that government figures show that over 200,000 properties have been empty for six months or more and separate LibDem sponsored research reveals that around 11,000 British homes have been lying dormant for over 10 years.

“What is most obscene in the UK in 2018: children living in inadequate hostels that will affect their life opportunities into adulthood; homeless people freezing on our streets; or properties standing empty while local councils hand out public money to private landlords?, states Ms Mckenzie.

Although councils have (it would seem, little used) powers to take over empty properties under the “Empty Dwelling Management Orders”, most landlords would be horrified if they thought a vacant property waiting to be re-let could be at the mercy of squatters.

In other Guardian newspaper articles, Leilani Farha, a special rapporteur on the right to housing, appointed by the United Nations Human Rights Council, says: “Housing is a human rights issue – and 2018 must be the year to address it.”, whilst columnist Michele Hanson says, “Bring back squatting! The best way to solve our unnecessary housing crisis.”

In what most landlords would see as irresponsible encouragement to break the law, these writers, it would seem, feel justified in the stance in the name of social justice.

Lisa Mckenzie says that a big part of the problem is the reliance by almost all UK councils on private landlords to house those in need of social housing. Councils’ relationships with the PRS includes various multi-agency schemes and the provision of loans for deposits for those recommended private landlords willing accept people receiving housing benefit.

“Private renting is a game of two halves: landlords and letting agencies that refuse to rent to those on housing benefit, and landlords who actively use local authority incentives to fill the gaps left by a lack of council housing. Payments are offered to landlords who take on tenants put forward by the council on long-term contracts. The rent for these tenancies is paid in housing benefit claimed by the tenant. Other schemes exist for landlords who lease their properties to councils for up to five years and the local council paying the deposit,” says Mckenzie.

Despite all this help and encouragement far too many homes are still left empty, responsible landlords would admit, but are these properties really landlords’ homes. Where they every available to rent?  Is encouraging the homeless to take the law into their own hands the answer.

Is it right that a landlord with every intention of re-letting a vacant property should have their home put in danger of being squatted.

Serious questions need to be asked, no doubt, but is such a drastic solution really called for?

Empty Dwelling Management Orders

Squatting and the law

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Need some advice on pre-empting costly evictions?

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Join Paul Shamplina, Founder of Landlord Action and Founder of the online letting agency Upad, James Davis, for a FREE webinar offering top tips for avoiding evictions with your tenants.

The webinar includes advice on:

• Choosing the right tenant from the start
• The terms and conditions of your tenancy agreement –

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Landlords’ Self-Assessment Tax Returns

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Buy-to-Let Landlords and Tax

It’s that time of year again, and the 31^st of January 2018 deadline draws near for the filing of tax returns and paying the tax due for the tax year 2016-2017. Inevitably, there are many landlords who still need to sit down, gather all of their receipts, invoices and numerous scraps of paper together, and put them into some sort of order before they can calculate the totals and the amount of tax payable.

If you earn income from rental property you are under a legal obligation to keep accurate records (for six years) and file an annual self-assessment tax return – HMRC Form SA100. If you have property income there is a supplementary form for this – HMRC Form SA105 – see the full list of Self-Assessment forms and instructions on how you can file your tax return online, from the links below.

Keeping records for rental properties is a simple process if you get yourself organised – simply file away all your receipts and invoices in a lever arch file in date order, and make a list of all other payments and receipts, those through the bank and credit cards etc.

We have produced a free Excel based spread sheet accounting system for up to 9 properties. Download it here

Use this tool to get yourself organised – it records and automatically calculates your rental property business financial information, Income, Expenses and gives you profit or loss.

Presenting information to your accountant in an organised state will significantly reduce your accountant’s bill, or it will assist you greatly in getting an accurate figure if you decide to do your own tax return.

You can minimise your tax bill as a landlord by making sure you deduct as many allowable expenses as you can, which must all be connected with your lettings business. Remember, these must be allowable expenses approved by HMRC, and they must be incurred “wholly and exclusively” for the business, and backed by paper evidence – paid invoices. No expenses claimed must be for personal use.

Unfortunately for buy-to-let landlords, they are seen by the general public as having had it far too good for too long, as far as taxation is concerned. And in these times or tight government finances, successive Chancellors have consequently been targeting landlords for new sources of revenue, as this has been seen as politically acceptable.

For those landlords with mortgages, the traditional business tax relief they claim on their mortgage interest is being reduced by 25% per annum from April 2017 until 2020, and the useful 10% per annum wear and tear allowance against rental income has been stopped. Now landlords must claim for selected replacement costs on an item-by-item and like-for-like basis.

Given the complexity of our tax rules, working out the true profit on your rentals business (Income less Expenses) is not always that straightforward, and this is where a professional accountant comes in. Not all expenses are allowable against rental income; there is a distinction between repairs / replacements and improvements (capital items); and there are other rules that only apply when you are starting up. All these issues we will deal with in this series of articles.

Over the next few days we will be publishing a series of articles to help you with your book keeping and self-assessment tax return for the tax year April 6^th 2016 to April 5^th 2017.

The Self-Assessment Tax Return, HMRC Form SA100, and Property income supplementary – HMRC Form SA105 – available here

Filing your tax return online here

Free LandlordZONE Excel Tax workbook tool – download it here

Next Article in the series – What is an Allowable Expense?

HMRC is increasing its targeted compliance activity across the private rented sector through taskforce activity – see HMRC – Tackling the Hidden Economy

HMRC says it is encouraging those who have been non-compliant to come forward through activities such as the Let Property Campaign

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Landlords’ Self-Assessment Tax Returns | LandlordZONE.

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Warrant executed on incorrect property by EDF!

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EDF energy are not the suppliers at my rental property yet executed a warrant with forced entry, causing superficial damage.

Initially after several exchanges via email they insisted that they had accessed the incorrect property.

Now they have accepted

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Changes to Universal Credit will help landlords.

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Direct Payments: 

Landlords with Universal Credit (UC) tenants will welcome this change, announced today by the Residential Landlords Association (RLA)

The announcement comes after what the landlord body says has been “extensive campaigning”. The changes to the way Universal Credit will be administered for landlords will make it easier for direct payments to be made to landlords when tenants default.

The Department for Work and Pensions (DWP) has today confirmed that (UC) landlords will no longer need a tenant’s consent to allow direct payments when landlords are applying for payments of rent direct to the landlord, or in the DWP parlance, Alternative Payment Arrangements (APAs).

Previously, landlords had to seek ‘explicit consent’ from the tenant to trigger these payments. In practice this usually meant tenants could delay or even refuse consent, leading to substantial rent arrears.

Following the RLA’s intervention the DWP has now scrapped the requirement and, if a landlord can show that the tenant is in arrears of two months or more, the DWP it will commence payments direct to the landlord – this was always the case under housing benefit.

Chris Town, RLA Vice Chair, said:

“The latest news regarding APAs is a major step in the right direction, and will improve the operation of Universal Credit for landlords and tenants.

“The RLA’s close working relationship with the DWP has led to this and a number of other constructive changes in the operation of Universal Credit.

“That said, further reforms are still needed and we will continue to work with the Department to make Universal Credit work better for landlords and tenants alike.”

The RLA represents over 50,000 private sector residential landlords in England and Wales.

About the changes:

• The change to APAs was brought into effect from 20th December 2017.
• Tenants will have the opportunity to challenge applications, and under the new system will be given seven days to dispute or disagree with the request.
• If they can provide evidence that they are not in arrears – or that they are in dispute with their landlord, the APA will not be created.
• The DWP said the move will both help Universal Credit claimants manage their money and help reduce the risk of rent arrears.
• A DWP spokesperson told the RLA: “Universal Credit is the biggest welfare reform in a generation and lies at the heart of our commitment to help people improve their lives. As we roll-out the new system, we are improving the way it works and this includes increasing support to help people stay on top of their rent payments.”
• A debate on the effect of Universal Credit on the private rented sector, initiated by Liberal Democrat Work and Pensions Spokesperson, Stephen Lloyd MP, will take place in Westminster Hall at 9.30am on Tuesday 9th January.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Changes to Universal Credit will help landlords. | LandlordZONE.

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