Allowable expenses question.

[Touronaut]

I bought a house from an auction for £50,000. The auctioneers charge a none refundable "reservation fee" of £5,000 + VAT. This is not a deposit, but a fee that is charged by the auctioneers on top of the price paid for the house (criminal, I know!). The total cost of the house was £56,000, but the price I "paid" and what it says on the land registry is £50,000.

My question is; Is the £5,000 + VAT is an additional cost to the purchase price, so is the whole of the amount classed as an allowable expense against my rental income or just the £1000 VAT. This £5,000 + Vat seems to be for a service.

 

[Anna Chandley]

The reservation fee is a cost of buying the house and will not be an allowable expense in calculating the rental profits as it is a capital cost.

When you eventually sell the property the £6,000 will be an allowable cost in calculating the capital gain on the sale.

Anna

 

[Touronaut]

The reservation fee is a cost of buying the house and will not be an allowable expense in calculating the rental profits as it is a capital cost.

When you eventually sell the property the £6,000 will be an allowable cost in calculating the capital gain on the sale.

Anna

So even the £1000 VAT is not to be deducted until the sale of the property?

 

[Anna Chandley]

So even the £1000 VAT is not to be deducted until the sale of the property?

Assuming the VAT cannot be reclaimed then the it is simply part of the reservation fee and is not treated any differently to the £5,000 net cost.

Anna

 

[Touronaut]

Assuming the VAT cannot be reclaimed then the it is simply part of the reservation fee and is not treated any differently to the £5,000 net cost.

Anna

OK, thanks. It seems the money is lost forever as the property will not be sold in my lifetime. And to top it off my son will be hit over the head with an inheritance tax.