PTC - Property Income
jenny3549
Registered Posts: 472 Dedicated contributor 🦉
Can anyone clarify something for me? I have just done the June 2010 personal tax paper for practice and cocked up the question on the three rental properties. I had the redecoration costs as an allowable expense but when I checked the answers they weren't allowed.
I'm confused - my book says redecoration is allowable. I know about the repairs not being allowed if they were necessary before the property is acquired but all the sample questions in the book allow for redecoration between tenants.
Am I missing something? Don't mind being wrong, but hate not knowing why I was wrong!!
:confused1:
I'm confused - my book says redecoration is allowable. I know about the repairs not being allowed if they were necessary before the property is acquired but all the sample questions in the book allow for redecoration between tenants.
Am I missing something? Don't mind being wrong, but hate not knowing why I was wrong!!
:confused1:
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Comments
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Can anyone clarify something for me? I have just done the June 2010 personal tax paper for practice and cocked up the question on the three rental properties. I had the redecoration costs as an allowable expense but when I checked the answers they weren't allowed.
I'm confused - my book says redecoration is allowable. I know about the repairs not being allowed if they were necessary before the property is acquired but all the sample questions in the book allow for redecoration between tenants.
Am I missing something? Don't mind being wrong, but hate not knowing why I was wrong!!
:confused1:
redecoration here is disallowable as the property is quite run down,so she won't be able to let it out before the decoration0 -
redecoration here is disallowable as the property is quite run down,so she won't be able to let it out before the decoration
I was wondering about that but, because she had tenants in before I didn't think this would fall into the category of disallowable ones. The examples I had read for those were things like the roof needing repair when the property was purchased?
Surely redecorating between tenants can't be included as repairs needing doing when the property is purchased when there are tenants between?
Sorry, I'm still a bit unclear on this.0 -
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This would be a capital expenditure as it isnt repairs caused by the tennents but it is improving and adding to the value of the property - (as any improvements needed when the property was bought would have reflected it in the price paid).
I remember writing this in the exam back in june0 -
That's the bit that makes it capital not revenue.redecoration here is disallowable as the property is quite run down,so she won't be able to let it out before the decoration
I didn't see the exam question, but it's this bit that makes the difference.
If it was normal redecorating, I would call that revenue, but as she had to bring it to a lettable state, it becomes capital.0 -
but as she had to bring it to a lettable state, it becomes capital.
Just to clarify;
As there has been previous tennants, it was obviously lettable then, so is it still usually classed as capital when its returning it to a previous state?
It interests me because I had to do similar with a house I rent out. But I classed the redecoration as revenue.0 -
Thanks for the replies folks. I don't know whether I'm just being too picky. I've pasted below the parts from the exam paper. I can understand why the first one is disallowed as it would be classed as capital expenditure (as you say this is improvement needed to make it habitable) but the second one just says it is redecorating which to me would be allowed.
I'm probably being way too anal here but I hate it when I can't understand something!!!
76 Grumpy Grange: this furnished bungalow was bought by Sophia in May 2009. The property was rather run down when she bought it and she spent £5,000 on repairing the property before it was ready to let. Tenants moved into the property on 1 October 2009, paying a monthly rental of £500.
14 Dopey Drive: this unfurnished apartment was rented out from 1 September 2008 to 31 May 2009 at £300 per month. Sophia redecorated the property at a cost of £1,500 and the new tenants moved into the property on 1 January 2010. They paid six months rent in advance, totalling £2,200.0 -
Just to clarify;
As there has been previous tennants, it was obviously lettable then, so is it still usually classed as capital when its returning it to a previous state?
It interests me because I had to do similar with a house I rent out. But I classed the redecoration as revenue.
In practice, I would treat it as revenue too.
76 Grumpy Grange: this furnished bungalow was bought by Sophia in May 2009. The property was rather run down when she bought it and she spent £5,000 on repairing the property before it was ready to let. Tenants moved into the property on 1 October 2009, paying a monthly rental of £500.
14 Dopey Drive: this unfurnished apartment was rented out from 1 September 2008 to 31 May 2009 at £300 per month. Sophia redecorated the property at a cost of £1,500 and the new tenants moved into the property on 1 January 2010. They paid six months rent in advance, totalling £2,200.
Grumpy grange: £5000 repairs are capital - bringing it into a lettable state.
Dopey Drive. Redecoration is revenue, no reference to bad state of repair and it being an improvement. It's repairs and maintenance expenditure.
I would have got this wrong too, I disagree with the answer!0 -
In practice, I would treat it as revenue too.
Grumpy grange: £5000 repairs are capital - bringing it into a lettable state.
Dopey Drive. Redecoration is revenue, no reference to bad state of repair and it being an improvement. It's repairs and maintenance expenditure.
I would have got this wrong too, I disagree with the answer!
It's not just me then!! I had the first one right by disallowing it but I allowed the redecoration. When I checked the answers I couldn't for the life of me understand where I had gone wrong. I don't mind making mistakes as long as I can learn from them - but I'd make exactly the same 'mistake' again!0 -
It's not just me then!! I had the first one right by disallowing it but I allowed the redecoration. When I checked the answers I couldn't for the life of me understand where I had gone wrong. I don't mind making mistakes as long as I can learn from them - but I'd make exactly the same 'mistake' again!
I think plenty of accountants in practice make the same mistake. If indeed it is a mistake.
I'm going to have to look this one up at some point....0 -
I did this exam in June and put it in as an allowable expense! I think by that time I was totally panicking as the paper was hard but even if I had found the rest of the paper easy I would still have put it in as an allowable expense!
Goods News is I passed but this is interesting to know anyway.
That paper still freaks me out so I havent looked at it again. So be warned anybody that is doing PTC in next exams. I did all past papers before the exam and found them relatively straighforward but this was Aaaaaaaaagh! :laugh:
Just hoping BTC isnt as bad0 -
From Tolley's tax guide 2009-10, section 32.5Allowable expenses include... maintanence, repairs and redecorations. Allowable expenditure will include that incurred before letting commences, in the same way as for pre-trading expenditure. This does not apply to newly acquired property that were necessary before the property could be brought into use, which form part of the capital cost. Improvement expenditure... is not allowable.... althought it is counted as part of the cost for capital gains purposes.
I therefore disagree with the exam answer. The £1500 redecoration between tenants was revenue, it's about what you'd pay a professional decorator to give the whole place a lick of paint. Even though in an unfurnished place, decoration is a tenant's responsibility, it makes sense to redecorate if needed between tenants.
While it may be implied that this cost was needed before the new tenant moved in, it was not explicit in the question and as most people in this thread have concluded, it smells very much like revenue expenditure. Anyway, it wasn't a newly acquired property so the "bringing into use" argument should not apply.
If I had failed the exam on this part, I would complain to the exam board.0 -
From Tolley's tax guide 2009-10, section 32.5
I therefore disagree with the exam answer. The £1500 redecoration between tenants was revenue, it's about what you'd pay a professional decorator to give the whole place a lick of paint. Even though in an unfurnished place, decoration is a tenant's responsibility, it makes sense to redecorate if needed between tenants.
While it may be implied that this cost was needed before the new tenant moved in, it was not explicit in the question and as most people in this thread have concluded, it smells very much like revenue expenditure. Anyway, it wasn't a newly acquired property so the "bringing into use" argument should not apply.
If I had failed the exam on this part, I would complain to the exam board.
I think we're all in agreement! I doubted myself to begin with since I am in the process of studying this unit at the moment so you generally think you must be wrong so it's good to know that I have grasped this subject correctly.
It's very wierd that the exam answers should be wrong on something that's not even really that vague a subject!
I think possibly the AAT need to issue an amendment to the answers on this one as there are a lot of people like me that use the past papers for revision and might then change what they would put in future on the basis of this question.0 -
Is there anything in the examiners notes?0
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I think we're all in agreement! I doubted myself to begin with since I am in the process of studying this unit at the moment so you generally think you must be wrong so it's good to know that I have grasped this subject correctly.
It's very wierd that the exam answers should be wrong on something that's not even really that vague a subject!
I think possibly the AAT need to issue an amendment to the answers on this one as there are a lot of people like me that use the past papers for revision and might then change what they would put in future on the basis of this question.
Agreed.
May I suggest a number of students point this out to the AAT? I'd love to know the rationale behind their answers.0 -
This is bugging me!14 Dopey Drive: this unfurnished apartment was rented out from 1 September 2008 to 31 May 2009 at £300 per month. Sophia redecorated the property at a cost of £1,500 and the new tenants moved into the property on 1 January 2010. They paid six months rent in advance, totalling £2,200.
The only thing I can think of here is that £2200/ 6 = £366.67 per month, an increase on the previous rent per month, possibly justified by the redecoration. Even so, redecoration is a revenue expense, it's only capital if it's a newly acquired property, which it wasn't as it was previously let out. I can't see that £1500 of decoration is an improvement, therefore it's revenue.
I want to know their reasoning behind the answer!0 -
This is bugging me!
The only thing I can think of here is that £2200/ 6 = £366.67 per month, an increase on the previous rent per month, possibly justified by the redecoration. Even so, redecoration is a revenue expense, it's only capital if it's a newly acquired property, which it wasn't as it was previously let out. I can't see that £1500 of decoration is an improvement, therefore it's revenue.
I want to know their reasoning behind the answer!
I know, I thought about that too (but only afterwards when I was trying to figure out how I got it wrong!) but couldn't justify that as an excuse. It seemed pretty clear to me. Maybe if the redecoration had cost £20,000 it might ring a few bells but £1500 is not a lot as anyone who's ever tried to redecorate knows!
I'd love to hear an explanation from the assessor on this. I'm just glad that I was only doing the paper for practice rather than the real thing otherwise I would be really frustrated!0 -
I WAS frustrated Jenny and still say that it was a Revenue Expense but have to take it that I got it wrong as the AAT answer says so!0
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I WAS frustrated Jenny and still say that it was a Revenue Expense but have to take it that I got it wrong as the AAT answer says so!
The tax book says the AAT were wrong, unless I'm missing something either glaringly obvious or so subtle it shouldn't be in the exam. I don't blame you for being frustrated, I know I would be.0 -
But will they admit they are wrong Monsoon that is the question?
If I had failed I would definitely be querying this one, since you have pointed it out that the AAT defo got it wrong. It could have made a difference as to whether someone passed or failed.
Anyone on here that failed should get in touch and query it.0 -
The tax book says the AAT were wrong, unless I'm missing something either glaringly obvious or so subtle it shouldn't be in the exam. I don't blame you for being frustrated, I know I would be.
Is it in the wording, or the numbers.
If rent from £300 before the decorating to £366.67 after, does that mean it would be classed as improvements and not JUST decorating?0 -
i did fail it, but having rechecked which bits i failed on, it is not this bit. Not sure how i passed this question but apparently i did.
Tracy0 -
Well, I have emailed the AAT to see what the response is - although at the moment it takes over a week to get a response so, we'll see!0
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Is it in the wording, or the numbers.
If rent from £300 before the decorating to £366.67 after, does that mean it would be classed as improvements and not JUST decorating?
The question wasn't explicit though. It could have been that £300 was an old market rent, and actually current market trends mean the new rent was £375 a month, and the tenant got a small discount for paying 6 months in advance. Too many variables, and you shouldn't have to make assumptions in an exam, the questions should be worded perfectly. On the information given in the question, it was revenue, unless I'm missing something and have misread the question or Tolleys.0 -
The question wasn't explicit though. It could have been that £300 was an old market rent, and actually current market trends mean the new rent was £375 a month, and the tenant got a small discount for paying 6 months in advance. Too many variables, and you shouldn't have to make assumptions in an exam, the questions should be worded perfectly. On the information given in the question, it was revenue, unless I'm missing something and have misread the question or Tolleys.
I agree, without more detail I'd go with it being revenue. Things like this really bug me!0 -
Just thought I'd update this one since it was very frustrating. Finally had a response from the AAT today (only took 7 weeks!!!). This is what they said:
Q: "In section 2 of the June unit 19 exam paper (page 15) there is a reference to expenditure of £1,500 on redecoration of 14, Dopey Drive between tenancies.
In the absence of any other information this would normally be permitted as an expense as there is no element of capital improvement, and the property was previously let, so this is not making good dilapidations present in the property on purchase. However in the published answers (page 5) there is no mention of this expenditure.
If this item were included then the published answers to tasks 2.2, 2.3 and 2.4 would be incorrect."
A: We realised during the markers’ meeting that this cost could have been interpreted as being revenue expenditure and so we agreed to allow students to include it in the costs and not lose any marks.
I hope this helps. As you can see from the Chief Assessor’s response, no candidate was penalised for the interpretation you mention.
So, it seems we were right after all. Although it's nice to know that no-one sitting the exam was penalised for their 'interpretation' it's not really much help to students using the paper for revision for future exams.0 -
I always say that I dont think Exams are a fair way to judge whether a student is competent or not. When I have done past papers in the past for all my exams there are always easier exams and harder exams. I know people say that exams are all checked before they are set but they are definitely not the same difficulty each time, it varies.
Exam questions should not give questions that can confuse the student they should be straightforward in order to check if they are competent or not.0
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