Continuing with my ten things all landlords need to know…
“A new HMO is fully furnished. Is the cost allowable?”
This one should be nice and easy yeah? Someone buys a big house, furnishes it and rents the rooms out. Surely tax relief is due on the furniture! Nope! Not initially at least.
So how did the audience do on this one? 56% of people though they would get tax relief on the initial furniture cost. So over half were paying less tax than they should be. EASY pickings for HMRC are in most areas HMOs are licensable. If I worked there (Joe I know you read these!) I’d get a list of all new HMO license granted by local authorities and drop letters to the owners. Over 50% chance they will have claimed a relief they weren’t entitled to.
Now let’s see why! Well for a good number of years now the relief you get for finishings is covered by “Replacement of domestic items relief”. The massive clue on this one is right in the name. Replacement!
The first lot won’t qualify but as the students smash them yearly their replacement will be allowable. It’s at this point audience members shout out that they should buy rubbish first time round and replace them quickly. I’ll let you decide what to do with this information but go too cheap a you won’t get the rent you were hoping for.
Now property wouldn’t be property without a complication so I’ll stress here the rules are different for commercial lettings and (currently) holiday lets.