Personal Tax- Rental Income

flapper84

Hi,

I sat my personal tax exam yesterday and have a query about question 3 (Property income).

I cannot rememmber the question word for word but I was given various income & expenses relating to 2 properties & asked to calculate the taxable rental income due. One of the costs related to double glazed windows that had been installed to replace existing windows that had become rundown. I couldnt decide whether this should be treated as capital expenditure or whether it should be an allowable deduction from rental income. Double glazing could be perceived as enhancing the value of the property or it could be just repairing existing items- afterall the question did not state if the existing windows were double glazed?

Does anyone have an idea of the correct way to deal with this cost?

Thanks

MarieNoelle

Replacing normal windows by double-glazing ones is considered a revenue expense and not an improvement since it reflects a change in technology and is now standard. It is specifically discussed here.

MarieNoelle

Sorry the link should be http://www.hmrc.gov.uk/manuals/bimmanual/bim46904.htm

Kelly7

I had a similar question about a cooker. My teacher said if it is replacing a capital item then it is allowable but if it is new and they haven't had it before then it is not.
Good luck. x

MarieNoelle

@‌Kelly 7
I think this would have been valid under the renewals basis - but from 2011/12 the wear and tear allowance is now statutory for furnished properties. So I would say replacing an old cooker is no longer a claimable expense.
I would welcome others' comments though.

Kelly7

Ooh yes, I didn't even think about that being included in the wear and tear allowance.

Anyone else think this?

x

KernowAccountant

MarieNoelle said:

@‌Kelly 7
I think this would have been valid under the renewals basis - but from 2011/12 the wear and tear allowance is now statutory for furnished properties. So I would say replacing an old cooker is no longer a claimable expense.
I would welcome others' comments though.

I think it may be deductible as revenue expenditure - if it were a fitted cooker. It is necessary to introduce the concept of "the entirety". If not a fitted cooker, I would concur with your view.

The example "Sophia" applies the entirety concept to a fitted cooker in HMRC's draft guidance here: http://www.hmrc.gov.uk/briefs/income-tax/draft-guidance.pdf

Sophia didn't make in into the final manual (I dare say she's pretty upset!) here, however: http://www.hmrc.gov.uk/manuals/bimmanual/BIM46900.htm

MarieNoelle

Thank you for clarifying this point @KernowAccountant‌ - The whole debate Revenue vs Capital expenditure is always a tricky one!

flapper84

Thanks for sharing the link, looks like I got it wrong in the exam but fingers crossed It won't affect the overall result!