A very good question and one which we get asked a lot. In the situation where you buy a property and then carry out renovation works, the tax treatment of expenses such as mortgage interest, utility bills, insurance etc is allowable. The position on the tax treatment of renovation costs pre letting however is more complex. Much depends on the condition of the property when you purchased it. HMRC would argue that if you purchased a run down property you would have paid less for it in the first instance and thus any renovation works carried out would be looked on as capital improvements and therefore not available to set off against rental income. Instead, these costs should be added to the purchase price and included as part of the cost of the property.

It’s a complex area and much depends on the circumstances. Get in touch and we’ll steer you in the right direction.

In certain circumstances, yes. Ownership can vary and before you consider going down this road it would be wise for you to consider the following:-

Types of ownership by individuals (England and Wales only)

Sole ownership
This is where a property is owned in one individual’s name and the income and capital gains are chargeable on that individual. Income and gains cannot be shared with a spouse or civil partner for tax purposes. 

Joint ownership (Joint tenants)
This is where the whole property is owned jointly and if one of the joint owners dies then the property automatically vests with the remaining owners. The interest in a jointly owned property cannot be left in a will until the last survivor becomes sole owner. Because the individuals are entitled to an equal share in the whole of the income and capital gains, they are shared equally and no election can be made for a different split of income. Therefore beware. When buying a property in joint names with friends say, make sure you check with your solicitor that you have common ownership as tenants in common. See below. 

Common ownership (Tenants in common)
This is where effectively a proportion of the property is owned by an individual. This may be equal or it may be in different proportions. If one of the tenants dies then his/her share goes into their estate and is dealt with by the will or according to the rules of intestacy. If the property is owned in different shares and the owners are not married/civil partners then the income and gains are divided in proportion to the ownership. In the case of married couples/civil partners, the income is treated as shared equally (whatever the beneficial ownership) unless they both make a declaration confirming the actual split of income based on the beneficial ownership of the income and the property. The gain would follow the beneficial ownership.

Given The Above Here Is How to save Capital Gains Tax
If one spouse owns a property in their own name, it would be an idea to transfer the property into joint names before a sale assuming that the other spouse has not already used their CGT exemption in the tax year concerned. Care does need to be taken as if this is carried out shortly before a sale, then HM Revenue and Customs may attack the transaction as invalid under anti-avoidance rules. You also need to ensure that any income received in the period after transfer of the property is declared on each spouse’s tax return which may increase the income tax paid. There would also be the costs of conveying the property into joint names.

In short…No. However, the cost of materials is clearly deductible. The cost of travel to the property should also be allowable, provided the only reason for your trip is in respect of the property and its future rental. However, you cannot deduct anything for the time you spend working in the property.

A very common question to which we have provided a separate detailed article. A must read for any landlord big or small.

Allowable expenses against rental income

There is nothing to stop you letting out a property to a connected person or anyone else for that matter at whatever rent you wish to charge. However if you are renting the property at below the market value you cannot set the losses against other rental profits and can only carry the losses forward to set against rental profits earned from the same tenant.