If you have a portfolio of properties and incur expenses then it may not be possible to attribute the cost to a single property. This is because the expenditure may have been for all of the properties.

A good example of this is when purchasing decorating materials for a property. In such circumstances you can either:

• apportion the cost against the properties, or
• have a separate listing of generic expenses to add on at the end when you combine all the incomes and expenditures.

Either way is fine, as it makes no difference to the tax position, though practically the latter option may be easier and simpler to implement.

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This is a grey area as far as taxation goes.

The rules for pre-trading expenditure are quite complex, but in theory you can claim expenses incurred in the seven years before commencement of the rental ‘business.

The expenses are treated as incurred on the first day the rental business starts.

Having said that, HMRC will want to examine these expenses closely with a view to establishing whether they were incurred ‘wholly and exclusively‘ for the purposes of the ‘trade.’
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There is no principal private residence relief available to an owner if he doesn’t live in the property, but his relatives do.

However, if someone owned a property on 5 April 1988 that has been continuously occupied rent-free by a dependant relative since that date, the property is exempt from CGT when the owner disposes of it.
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What is meant by the term fixtures and fittings and when can you offset the replacement of them against your income tax?

Fixtures and fittings are items that are classed as being an integral part of the property. If a new tenant moves into a property, they will expect these items to be in the property.

Examples of fixtures and fittings include:

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Any rental losses made on a property can be carried forward into the next financial year.

Sometimes you will incur a rental loss on your property investment. Rental losses can be incurred intentionally or unintentionally. The important point to note is that any losses can be carried forward into the next year and can be used to reduce your tax liability for that year.

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It is important to understand the distinction between Capital and Revenue, both for receipts and for expenses.

There have been numerous tax cases on this issue, and the distinction can be very difficult in the “grey areas” between the two, but as far as the typical property letting business is concerned, the path is quite well-trodden, and there are some clear distinctions to be made.

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Because property development is a trade, if you make a loss in any tax year, you can set this loss against any other income you may have for that year (salary, investment income, pension, and so on), and claim a tax repayment.

In the case of losses at the beginning or end of your trading enterprise, the loss can be carried back to earlier years.

The detailed calculation of a loss for tax purposes, and how to set it off against other income, can be extremely complicated – take professional advice if you are in this situation.

You may find that by using a property management company you will improve your tax position. If so, it is advisable to draw up a simple contract between you and your company.

Do not set up a company that manages your properties and just simply start paying money into it.

If you just go ahead and start making payments into your company, HMRC could challenge you (if you are ever investigated) for making artificial transactions to avoid paying tax.

Just drawing up a simple contract that outlines the services your company is providing to you will help to prevent such a challenge!

It is essential to set up a good record keeping system to keep track of your income and outgoings, and to keep those records safely.

This is equally true of rental income, of course, but in the case of trading records, you are required to keep the records until the fifth anniversary of the 31 January after the end of the tax year – so for 2006/07, the records must be kept until at least 31 January 2013.
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Generally speaking, a property is only your main residence while you are actually living there, but there are certain exceptions, such as living in job-related accommodation.

This relief is not often available, because the definition of job-related accommodation is very strict.

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