Good afternoon,

Just need a bit of info regarding allowable expenses for a landlord..renting out 2 properties.

I know repairs are fine, improvements aren't. Not sure on the petrol/car front? The car isn't wholly for business use. Can anything to do with the upkeep of the car be put through as an expense..IE Windscreen repair/Fuel/Carwash?

Any help on this at all would be greatly received

Thank you in advance.

The house would appear to have been financed in the wrong way to gain any tax relief on the interest.

The mortgage that you need is in the form of a loan taken out specifically against he property known as a buy to let mortgage. These are calculated in a different way to normal mortgages based on multipliers of rental income and are quite seperate to your main mortgage (They are treated as business loans and the letting business is treated as a legitimate business).

No claim can be made for the house with a family member residing in it.

Look into the cost effectivenes of taking out a mortgage on the house purchased outright as that is tax decuctable whereas the mortgage on your primary residence is not (fill in the gaps on that answer. I'm not going to write down what you should do here).

For the house with the wrong mortgage on it changing over now may prove more expensive than the tax saving. However, even had such relief been available the fact that a family member is in it means that you could not have claimed it anyway (including repairs).

For the house let out unfurnished all genuine expenses of a non capital nature are allowable. Just no 10% allowance is available as it is let unfurnished.

Capital expenditure adds to the value of the house so is not expensed.

When the house with a family member in it is let out the expenses must be allocated on the basis of tennant occupancy only. For example. if a family member occupies the property for 12 weeks, the property is available to let (unoccupied) for 40 weeks and of those is let to a paying tennant for 20 weeks then expenses will be calculated as (lets use £500 as an example figure).

£500 / 52 * 40 = £384.61

Note there that although not let it was available for let so the expenses are allowable.

Exceptions to this are things such as advertising costs which would be 100% allowable. so, taking the above £500 lets say £100 was advertising costs. The allowable expenses then would be :

£100 + (£400/52*40) = £407.69

The figures are contrived but I think that you see the general principle there.

general rule is that to be treated as a business then it must be run as a business.

kind regards,

Shaun.

p.s. note that considering the way that it has been financed there may be capital gains advantages to having the house that is being lived in by a relative as your main residence for a while dependant upon when you are looking to sell the house (avoid having it as your main residence for more than three years though).

I would strongly advise that you seek professional advice from a qualified accountant in order to minimise your ongoing tax liabilities. Unfortunately I fear that you may already have cost yourself considerably more than you would have paid to an accountant due to the mortgage mistake. However, a good accountant looking at the actual figures should be able to tell you how to rectify this or indeed whether it will cost more to rectify than you would gain by taking action.

Amended only to add the P.S.

Hi -

Relating to the mortgage interest bit, if the primary residence was remortgaged to provide the funds to purchase the rental house, I would disagree. I had this come up and was not sure so I rang HMRC to ask about the interest on a loan for a house and I was told catagorically that it didnt matter where the money came from, it could be a loan from a family member, a re-mortgage on another property etc. If the money from the loan was used wholly (or pro ratad if not) to purchase the property that was rented out then the interest portion was absolutely able to be used as an expense item aganst the rental income.

Beverley