PTC- redecoration costs

Yoelle

June 2010 personal tax paper, section 2 question 2.2 regarding property. The model answer shows that redecoration costs are not allowed.

I thought redecoration was allowed in between tenants as it is seen as bringing the property back to original standard, so could be treated as revenue not capital expenditure?

Hope someone can shed some light as to when it is allowed and when it isn't, I have seen examples showing allowed and not allowed so getting quite confused!

pirate

I actually did this paper
from memory redecoration here is not allowed on the property that was not previously rented becuase the property is quite run down, so she needs to renovate before tenants can move in. So it is a capital expense.
The redeoration bit between tenants is an expense so should be allowed. I do think at the time there was some discussion over this point and candidates werent penalised.
for putting it as an expense
Is it the one for redecorations between rentals.

Yoelle

Thanks for your reply- it's good to know it was up for debate at the time! Properties were described as-

-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.

-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.

I understand the repairs to 1st property are not allowed as this is capital expenditure due to the property being run down and value would have been added, but the 2nd property's redecoration costs are between rentals hence why I thought it would be allowed- not according to AAT answers???

pirate

Hi Yoelle

I've looked up my notes from the paper at the time (I got home and scribbled everything I could remember down) and I did exactly what you did. and I passed it, obviously don't know if I got that question right.

After the exams we were all discussing it, as far as I remember everyone put that they had claimed for this. Its between rental and is not of a capital nature. It says she redecorated the property, not renovated it or improved it where things hadn't been before. This was what the debate was about I think
Since it was up for debate students weren't penalised if they put it ion the calcs, so stick to your guns this is an expense.

If they had put that she had installed central heating, or extended the kitchen then this would not be allowable but it was redecoration. I would also say that if youre not 100% sure but lean towards one direction then put a note on the exam to explain your reasoning. I did this on this exam in another question.

I think it says something also in the chief assessors report.

Yoelle

Thanks Pirate.

Every comment you made in your last post I agree with- central heating system, extending kitchen etc.

I thought maybe there was something I was missing or a rule regarding redecoration that my text book didn't cover!

I will stop stressing over it now and follow your advice with a note to the examiner- in fact I did that when I sat DFS last December.

pirate

Yoelle

Did you I did DFS in December as well and passed, I always think its best to explain why you are doing something. At least this way if the calculation is wrong then at least they have some idea of your thinking and that you are competent in the subject.
when is your exam?

Monsoon

pirate wrote: »

, I always think its best to explain why you are doing something. At least this way if the calculation is wrong then at least they have some idea of your thinking and that you are competent in the subject.

I agree with this. I also think redecoration is allowable and in the real world I would allow it. There is something nagging at me about costs in between tenants possibly not being allowable (as opposed to maintenance while the tenant is in) but I really don't remember offhand. If you explain your answer in the exam then at least they know you have considered it as opposed to just guessing whether it should be in or out.

Yoelle

pirate wrote: »

Yoelle

Did you I did DFS in December as well and passed, I always think its best to explain why you are doing something. At least this way if the calculation is wrong then at least they have some idea of your thinking and that you are competent in the subject.
when is your exam?

Pirate,

Yes I passed DFS too, my note to the examiner was which account to post a journal entry to admin or distribution, I can't remember what it was for but I felt it could be argued either way.

Sitting 3 exams this time Mon 13th PEV, Tues 14th PTC and Thurs 16th PCR- my college loved to pile the pressure on this year! We sat DFS and Business Tax last December, after about only 14 lessons.

Have you got any exams to take this time?

Yoelle

Monsoon wrote: »

I agree with this. I also think redecoration is allowable and in the real world I would allow it. There is something nagging at me about costs in between tenants possibly not being allowable (as opposed to maintenance while the tenant is in) but I really don't remember offhand. If you explain your answer in the exam then at least they know you have considered it as opposed to just guessing whether it should be in or out.

Hi Monsoon,

Everyone I ask thinks redecoration is allowed- we were audited at work yesterday and I asked the auditor what he thought (he did AAT many years ago) and he couldn't understand why the model answer didn't allow it.

I quote from the osbourne book- "Expenditure that is allowable..... ongoing repairs, maintenance and redecoration costs (but not those of a capital nature).........expenditure that is incurred before the premises are rented out or in periods between rental periods is also generally allowable"

The chapter continues to explain what is not allowable- cost of improvements and renovation etc, it says any renovations before the property is rented out for the first time is not allowed, so here I assume redecoration would not be allowed, but it doesn't say anything else about why it would not be deducted?

Who knows? Obviously the examiner had his reasons.

pirate

Yoelle wrote: »

Pirate,

Yes I passed DFS too, my note to the examiner was which account to post a journal entry to admin or distribution, I can't remember what it was for but I felt it could be argued either way.

Sitting 3 exams this time Mon 13th PEV, Tues 14th PTC and Thurs 16th PCR- my college loved to pile the pressure on this year! We sat DFS and Business Tax last December, after about only 14 lessons.

Have you got any exams to take this time?

Hi Yoelle,
No exams this time I did both my Tax in June Last year and the DFS and MAC (which is PCR and PEV) in Dec. I think the tax exams sit well together but think that DFS and MAC were hard going together, mind you think BTC and DFS also tough.
Good luck with all of them, in some ways think its best to do several at a time might as well have all that stress and worry all at once, lol
K

Yoelle

AAT Tutor Response

For anyone interested (Pirate & Monsoon)- I emailed an AAT Tutor with the question of redecoration costs, this is the response-

"Normal ongoing repairs, maintenance and decoration costs are allowable when they bring the property back to its original condition. In this case on the June 2010 exam paper, the rent received after the decoration is higher than previously which indicates a state of improvement (if you calculate the monthly rent after the decoration and compare it to the rent received before - from memory an extra £66 per month). This is also supported by the fact that the amount spent of redecoration was quite considerable.

Even though the property was not occupied at the time of the decoration, costs of this nature that are incurred in between periods of non-occupation can still be allowable, providing they are not of a capital nature and do not bring the property into an improved state, they have to just maintain its current condition."

I think follow Pirates advice- a note to the examiner if in any doubt. Of course the general rental market may have picked up causing rent to increase? An ambiguous question I feel!

jewels.p

I did this paper too and claimed for it and remember the discussion we all had about it. I passed too and got that wrong (according to the model answers anyway!)