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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It is very likely that at some point you will have to carry out some maintenance work to keep your property in an acceptable state of repair.

Once you have purchased and successfully let your property, any maintenance costs incurred that help prevent the property from deteriorating can be offset against your rental income. You can do this as long as it satisfies the following condition:

It is not a capital improvement

What is a capital improvement?

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If you take out a personal loan that is used ‘wholly and exclusively’ for the purpose of the property, then the interest charged on this loan can also be offset.

A loan used for providing a deposit is one scenario in which the interest charged on a personal loan can be offset against the property income.
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It is, in general, not possible to offset interest on a loan if it is not used for the purpose of a property, but there is a ruling which is mentioned paragraph 45700 of HMRC Business Income Manual.

Paragraph 45700 gives landlords the opportunity to release equity from their investment properties and offset the interest regardless of what the equity release was used for.
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