Don't forget about offsetting pre-trading expenditure costs!
Question When looking to buy an investment property, I spent about £400 on finding a property. This cost was made up from petrol costs, buying newspapers with property for sale details, registering on websites, making telephone calls to arrange viewings etc.
Can these costs be offset?
The costs incurred here will be classed as 'Pre-trading Expenditure'.
This is a bit of 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' against the rental income.
The expenses are treated as incurred on the first day the rental 'business' starts.
The Revenue may want to examine these expenses closely with a view to establishing whether they were incurred 'wholly and exclusively' for the purposes of the 'trade'.
Again in theory the Revenue can disallow any expense which has a duality of purpose, but in practice they will usually allow a split to be made.
They will also examine the expenses to see whether they are capital or revenue in nature.
Taking the expenses as listed:
a) Petrol costs - it is better to claim a mileage rate than petrol costs as clearly it is impossible to identify the exact amount of petrol used.
A mileage log would need to be kept to prove the expense.
b) Buying newspapers - unlikely to be allowed as clearly you can not claim that this is 'wholly and exclusively' for the purposes of the trade - there is a duality of purpose here in that you are bound to read the rest of the newspaper!
Dedicated trade magazines may be allowable.
c) Registering on websites - depends on the nature of the website. If this is to locate properties then probably allowable, but if the website is of a more general nature then probably not.
d) Making telephone calls - the exact charge for each call is allowed, and itemised bills must be kept to be able to prove the cost of the calls. The cost of any line rental or any proportion of it is not allowed.
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