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Can improved insulation constitute a repair?
I act for various landlords who, despite some difficulties as interest rates rises, had started programmes to improve the insulation on their buy-to-let properties in anticipation of the new EPC regulations planned for net zero targets. One landlord in particular has a portfolio of older properties where secondary glazing is more suitable when repairing windows.
I note from HMRC’s Business Income Manual at BIM46925, that putting in double glazing (where the window itself didn’t require repairing), was now treated as a repair, as it effectively is ‘simply replacing like with currently available like’, and therefore deductible as an expense. So I am comfortable with the landlord claiming the secondary glazing as a repair.
Therefore, I am reviewing what else my landlord clients are doing to upgrade properties, particularly in respect of insulation, and considering how to deal with the expenditure in their returns. Many of them are increasing insulation in attics, typically by 75 to 125mm, and inserting cavity wall insulation into walls in old Victorian buildings. My inclination was initially ‘this is an improvement’ but now I’m not so sure. Somebody constructing a property now would use this improved type of attic insulation and would also fit insulation within a cavity wall. So would I be justified in suggesting to these landlords that they claim these insulation costs as a revenue expense? What do readers think? It would help to save the planet and move us towards net zero, in the environment if not in tax – if we could get deductions on improved insulation of a type which would be the technological norm for a new-build property. It would be very helpful if HMRC were to clarify its existing guidance to deal with this.
Query 20,219 – Green man.
Tax implications of giving offshore income to charity.
My client holds an investment in an offshore fund that will, when she cashes it in, give rise to a substantial offshore income gain. She is considering giving the whole thing to a UK charity. That would not qualify for gift aid, but as far as I can see, it would exempt the offshore income gain, because that is calculated using CGT rules – and a disposal to charity is at a ‘no loss/no gain’ value. Am I missing anything?
The alternative would be to receive the money, give 80% of it to the charity, pay 20% to HMRC, and claim gift aid – but that seems much more complicated.
If it does avoid those complications to give it directly, is it enough simply to declare that she has transferred beneficial ownership to the charity? It may not be possible to transfer legal ownership in this fund, and the operators may insist on paying the money into her bank account. Would she be treated as receiving the money on behalf of the charity and therefore not taxable on it?
Query 20,220 – Pandora.
Is relief available on house with kitted office?
My client is the director of a large private company.
She has recently spent a significant amount of money fitting out a large room in her house as a dedicated office. This includes multiple computer screens, acoustic tiling to improve the sound quality on teams calls, fitted storage space, a desk for a secretary (who comes to her house a couple of times a week to help with work) and all of the high-tech paraphernalia now expected in a modern high-end working area.
She has asked me whether this would mean that private residence relief would be restricted if she were to sell the house.
Normally, I am comfortable that somebody using a room in their house as an office shouldn’t affect the relief but this is rather different. Is there a problem? If there is, could it be avoided by ensuring that she uses the room for domestic administration and other non-work related tasks?
Query 20,221 – Concerned Adviser.
How should option to tax oversight be corrected?
I have recently taken on a new client who owns a commercial property in his own name which he rents out for £2,000 a month, most of which is profit because he does not have a mortgage.
The client had a bright idea three years ago to charge the tenant rent through his VAT registered limited company – rather than in his own name – which carries out management consultancy work. The reason was that it would save him 40% higher rate tax if the company paid corporation tax instead. The previous accountant drafted a fairly basic agreement between my client and his company, giving the company the right to charge and retain the rent.
My question relates to VAT. The client thought that because the company was VAT registered he should charge 20% VAT to the tenant – the tenant can fully claim input tax. However, an option to tax election has never been made with HMRC by my client or his company. The company has claimed minor amounts of input tax on property-related expenses in the last three years. How do we correct this position: should the company do a belated option to tax election with HMRC – backdated three years – or just give the tenant a VAT credit with a current date, reducing its output tax on the next VAT return?
Query 20,222 – Property Pat.
Queries and replies
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