Tax Return queries - costs for setting up let?

[LeanneA]

Sorry, me again!

As some regulars may have been following on my numerous recent posts, I am changing my previously residential flat to holiday use. The last tenant moved out early January, following a flood in December. I have renovated it since the flood damage, and intend to put the costs for that down as an expense on my residential property income tax return entry.

However, from the point I gained permission to change to holiday use from the freeholder, I have had to completely kit out the property from scratch, as I have previously let it unfurnished - everything from cutlery to furniture, and its cost me just over £2K to far, with a few more bills yet to come!

I am now looking forward (not) to completing my tax return and understand that furnished holiday letting has slightly different rules on allowable expenses etc, which I am trying to get my head around. As I probably won't even secure my first booking until after 5 April, yet my expense in furnishing, insurance, and other set up costs will fall in this financial year, how do I handle the "loss", ie the costs versus the lack of income? I know with residential lettings, any loss can be carried forward and used to reduce tax liability next year - does this still apply?

Are there any obvious set-up costs that are exempt as allowable expenses here? I think there is some ambiguity over the rules on expenditure on resi letting, whereby the set-up costs prior to actually letting can't be used towards the letting business, but am I correct that all the costs I have incurred prior to the holiday let commencing are permitted?

Sorry if I have confused you. Any advice appreciated, thanks

[Nemo]

Yes, you should be able to put all those costs down. I'm not an accountant though, so won't advise you how to do it. Jenny C is if she drops by, or I'm sure she wouldn't mind if you dropped her a quick pm just asking her to look at this thread when she has a minute?

Otherwise if you have a nose around past threads, trying different keywords, there are a few that cover this subject.

[rosebud]

I eventually went to an accountant (DHC Accounting) for my first year's accounts which has helped me as I have learnt a lot.
You can claim for insurance, water, heating & lighting in the period when you are preparing for letting.
You can also claim for furniture, equipment etc although you have bought them in the previous tax year as I had.
you can't claim for travel to manage the property until you have started letting.
You still need to make a deduction for time you or friends have spent there relaxing rather than working.

[Essar]

Your accountant will include all your costs in your "first financial year" regardless of when the work was done or when items were bought, they'll make your first financial year a "14-month, 16-month or whatever the start date was from" year to take into account the cross-over the tax year - this is a normal thing to do and will not be a problem. Some of your purchases may have to have their cost depreciated over several years, you can choose how quickly to depreciate individual items; you can "write-off" everything in the first year. Depreciation over time can be advantageous in future years when you income will be higher and you want to off-set your tax liability. For example, your furniture and beds are likely to have a long shelf-life of several years, so you can depreciate their value over those years. I personally take the lot in the first year as I have found that you will want to refurbish your property a lot earlier than some of the shelf-life of your items.

[DaveN]

Depreciation over time can be advantageous in future years when you income will be higher and you want to off-set your tax liability.

...but you can also carry losses forward from one year to the next, so you shouldn't be in any danger of losing your allowances.

[greenbarn]

It's a relatively complex area, it needs an accountant - and one who really knows FHL, not just any old accountant. Certainly in your initial stages, an accountant will save you more than they cost, and their fees are an allowable expense.

[Nemo]

I absolutely second that GB; it will be well worth the cost to get that first year under your belt via an accountant. You will then see how to allocate expenses and I'm sure will be able to do it yourself in future years.

[tchn]

The HMRC guidance is quite helpful if you plod your way through it. That said, we are in the same position as you (first available let a month ago, loads of renovation and purchases in the previous year to enable it) and we're going to get an accountant.

Just struggling to find one who is genuinely an expert in FHL, not just one who says they are.

http://www.hmrc.gov.uk/helpsheets/hs253.pdf

[rosebud]

As I wrote earlier, I am using DHC Accounting. They were recommended by a national holiday let agency and by someone on this site.

Having first gone to a local accountant - who was absolutely useless - I have found DHC Accounting to be extremely well informed and giving them my accounts has been really helpful. Haven't agreed their figures yet but am nearly there.