property investment and tax

[simondolan]

Repairs

Sounds like you had to undertake all these repairs around the time you moved in? That being the case the Revenue will contend that had the property been in good repair when you bought it, the purchase price would have been higher, therefore they will disallow the major repair work against profits and include it in the capital cost of the property for offset when you come to sell.

[JMorley]

Interesting point and once again thanks for the input.

However, the value of property does not work that way. If you spend money putting in a nice new kitchen or bathroom, and making the walls look nice and clean, you would not expect the price of the property to fully reflect the cost of this work, as it is repairs. A bit like spending a couple of hundred quid on a new clutch for an old car - if you came to sell it you would not be able to ask a prospective purchaser to pay the book price plus the cost of the recent repairs.

The concept of repairs is that you spend money which will not be reflected in the worth of an asset, but without spending the money the asset will fall into a state of disrepair and its functionality will be lost. Consequently, its value will decrease. So may be the important point here is that the price paid was average in the market at that time. The repairs were undertaken to maintain the asset. Possibly of more significance, in case of dispute with the Revenue, the purchase falls in one accounting period and the repairs in another, purely by virute of the purchase date being only days before the end of the accounting period.

I do expect the price of the property to increase because I chose the area I bought the property in by looking for an area which was below general market rates within the locale. As there is considerable investment by the Council inthe area ongoing prices should increase (they are already) and I would argue against anyone saying it was the repairs to one property that are moving the whole market in that area.

[simondolan]

You are applying logic to tax rules which unfortunately doesn't work much of the time.

The fact that the property was bought in one AP and the repairs done in the next is irrelevant I'm afraid.

By the sounds of it you bought a property in need of repair, carried out the repairs, then lived in it - that being the case you have very little case.

Always worth arguing the point of course if you are doing it yourself, but you have very little chance of success.

[JMorley]

I like your notion about logic and tax rules, although I have to say I think that an Act of Parliament somewhat gazzumps the Revenue's opinion if you have a dispute. Not that I'm saying the Capital Allowances Act will facilitate setting tax aside as I would like. Just that such Acts are very well constructed to accomplish a set objective.

As a sidepoint, probably of little significance, I did not live in the property, I stayed there in the same way I stayed in a hotel prior to purchasing the property. Nonetheless, this does provide anothe rfront to my argument, namely that the cost of staying in a hotel is an expense that is not taxed, therefore, so should the cost of the property purchased.

Out of interest, had I have rented accomodation would that be classed as subject to CT?

[simondolan]

I Just that such Acts are very well constructed to accomplish a set objective.

Actually, many Acts are quite poorly constructed.

As a sidepoint, probably of little significance, I did not live in the property, I stayed there in the same way I stayed in a hotel prior to purchasing the property. Nonetheless, this does provide anothe rfront to my argument, namely that the cost of staying in a hotel is an expense that is not taxed, therefore, so should the cost of the property purchased.

Except that the hotel expense is just that - an expense. The property purchase is a capital asset.

Out of interest, had I have rented accomodation would that be classed as subject to CT?

If you rented a property whilst away on contract, and it was not your main home, then the rental costs would be allowed against profits.

[ASB]

If you rented a property whilst away on contract, and it was not your main home, then the rental costs would be allowed against profits.

Out of interest Simon what do you generally claim for your clients, I've always claimed the rent bills etc and then taken a small BIK hit for occassional private use (e.g. family coming up instead of me going home). I got this through my inspector with no real problems, however one keeps seeing comments like "can't claim council tax" or "best to only claim 5/7ths".

Are there any hard and fast rules or is it just down to the inspector on the day?

Possibly of interest to the OP. When I bought a house near contract which I used not as a primary residence I claimed:-

Bills
Mortgage interest
Council tax

Again I took a small BIK (5% I think) for personal use.

I don't see why it should be any different for the OP just because the property is owned by his company (but may well be of course).

[simondolan]

rent

If the client has had to take the rental property because of the location of the role, and they keep their main home (and don't let it), then we advise them to claim all costs associated to the rental property. Have never had this challenged, and no BIK is declared.

Same applies to buying a property in the Company name near the contract location (again assuming not main house etc) - bills and interest allowed, but the capital cost of the property would never be allowed.

[boredsenseless]

If the client has had to take the rental property because of the location of the role, and they keep their main home (and don't let it), then we advise them to claim all costs associated to the rental property. Have never had this challenged, and no BIK is declared.

Same applies to buying a property in the Company name near the contract location (again assuming not main house etc) - bills and interest allowed, but the capital cost of the property would never be allowed.

Let's be sensible here - firstly as shown by his answer above Simon does this stuff all day everyday, trying to show you understand it better then him is at best arrogant and at worst stupid as he's trying to help.

Assuming for one second the house was an allowable asset...

How do you measure the useful life of a property? My house was built in 1700 and therefore has already had 300 years of useful life, and I expect it to last the same again, so would you really want to offset the cost at 1/600 a year?

Also the idea of writing down an asset is to account for the fact that over time it becomes less useful and less valuable, both of which do not apply to properties which traditionally become more valuable and remain just as useful.

I think you've made a mistake buying it in the company name, you would have been employed engaging a decent tax planning specialist to determine the best way to extract the cash out of the company to buy it that way.

[JMorley]

boredsenseless

If you had read my previous posts in detail, you would have noticed that the argument I constructed (in concurence with The Act) does not depreciate the asset, it associates the capital cost as an expense of the trade. This in effect accounts for the fact that property does appreciate rather than depreciate over time. As noted by Simon the point is whether the Revenue would accept the asset as being provided for worker welfare.

I appreciate Simon's posts and thank him for them. My course of action from here is to ask the opinion of the Revenue, the chances are that Simon is indeed correct. Though, as I have said previously, you don't get if you don't ask.

One other point worth noting, and this is not meant as a slight to Simon, however, it is not in the interest of an accountant to sign off accounts that could be queried by the Revenue. For the simple reason that they would then have to deal with the query at their own expense in time. As such, an accountant is very unlikely to advise a course of action that may incur him non-chargeable work.

[philip@wellwoodhoyle]

But even if you managed to claim the cost as an expense, which I doubt very much would be successful, when you eventually sold it, the entire proceeds would be taxed as income -on a like for like basis. Surely you would prefer capital gains tax treatment for the property in personal ownership as you would pay far less tax on final sale.

As for accountants wanting to avoid enquiries because of having to do the work free, I think you will find that most (if not all) accountants would charge for enquiry work or insist/advise you to get insurance to cover their costs - even for those who do the "all inclusive" monthly fee, I think very few would also include tax enquiry/investigation work - they will either be charged separately or your monthly fee will include insurance - whatever way, the accountant will get paid for the extra work!