I mentioned recently that I did an interactive webinar on Ten Things All Landlords Should Know About Tax.
One question was ” You replace the kitchen in a new AST purchase BEFORE it is let. Is it a repair or capital?”
Out of the people asked 59% got this wrong and said it was a capital cost. Depending on where you are with your tax journey the idea of revenue or capital might not make sense but revenue costs are an allowable deduction against rent and normally preferred whereas capital costs form part of the base cost of the property and come in to play only when the property is sold.
Some people think you can choose which you prefer (that would be nice!) but you can’t. If you fail to claim a deduction against rents you can’t simply mop up expenses against the sale. So if these people didn’t think it was an allowable cost that would suggest they have failed to claim for their day one kitchens and other things like that. A £5,000 kitchen for a higher rate taper is worth £2,000 in tax.
I think that kind of error alone is a good reason to get professional help but 64% of the people doing the quiz said they were responsible for the figures submitted to HMRC. Most of them had no help at all and the rest decided which figures to send to their advisor. Imagine taking your car to the mechanic and telling them to only fix the problem that you have diagnosed? They’d never check the brakes, fuel efficiency, oil or anything else. That would make for an interesting drive every time you took the car out 😳
One missed modest kitchen would cover the cost of professional help for multiple years. Crazy!
Note this doesn’t mean all kitchens are a revenue expense. Far from it. Replacement normally are though so long as what you put in is largely the same at the one you are placing.