Treatment of Capital Allowance when retiring as a Landlord

[SeamMcC]

At last I am retiring quitting as a reluctant landlord – one bad tenant, mature house that needs to much TLC & too much going on at work & at home… not to mention the tax!

On that note, I am trying to understand the tax implication of selling up on the previous spend on capital allowances (furniture, white goods, etc). For items that have not been fully depreciated, how are they treated? Do I write them off fully in this tax year if I dispose of the house and items in question?

 

[AAAContributor]

I think this is how it works:

Put a market value (MV) on the items that you will likely realise on disposal.

Compare this to the current tax-written down value (TWDV) i.e. Expenditure minus (no. of years capital allowances claimed x item cost x 12.50%).

So, if you acquired a washing machine for €600 and have claimed two years of capital allowances (2 x €600 x 12.50% = €150), the TWDV = €450.

If the MV you realise on disposal is €500, then you have claimed too much in the way of capital allowances against your income and need to account for a balancing charge in your Case V rental income calculation this year. So, add €50 to your rental income for 2021. (EDIT: no balancing charge arises where individual fixtures and fittings is disposed of for €2,000 or less to an unconnected person.)

If the MV on disposal is €250, you have not claimed enough allowances and so a balancing allowance of €200 is available as a deduction against your Case V income for this year.

If your tenant has vacated and you have no income to deduct this balancing allowance from, I believe you can take a deduction in your CGT calculation on the sale of the property for the full cost of the item (€600) LESS a deduction for the capital allowances claimed to date (€150) and the balancing allowance on disposal of €200. So, you can include a deduction for €250 net in your CGT calculation which will reduce the CGT payable or increase your loss (if that is the case) for carry forward to offset any capital gains you may have in the future.

 

[Bronte]

He can't have double dibs on the tax relief. So he can't write off the washing machine for Capital Gains. And in any case it's not a capital expenditure.

For CGT he writes off the original costs (indexed if available) costs of acquisition, costs of dispoal and enhancement expenditure (not claimed elsewhere.)

And he'd do well to make sure he has enough rental income this tax year so that he can write off the reminder off the W&T as I know you can bring rental losses forward but only against rental income if I remember correctly. Though I doubt we are talking much money here.

 

[SeamMcC]

thanks for the insights @Bronte & @AAAContributor.

Unfortunately due 1) the timing in the tax year & 2) a tenant who sub-let to 3 others & left the country with their deposit & rent, I'm not going to have much rental income for 2021... And a lot of cleaning up to be done. Looks like I'll be carrying these rental losses forward forever as I never intent to get into the landlord game again. In saying that, I didn't intent to get into the landlord game in the first place!

 

[AAAContributor]

@SeanMcC

If the unusable balancing allowance is a meaningful enough sum it may be worth getting advice from someone in tax. Perhaps your solicitor handling the sale of the property has an advisor on speed dial they can run the query by.

There must be plenty of people in your situation that exit the landlord business for good and are left with balancing amounts. The carry forward against future rental income is useless in your situation where you have been scarred and are unlikely to return to the business!

I think I'm incorrect about my suggestion above but another poster (@dublin67) in this thread (see post #5):

https://www.askaboutmoney.com/threa...aimed-capital-allowances.204652/#post-1530558)

did allude to something about chattels used in a business and the possibility for claiming a CGT loss and perhaps this may be something you could use in the future.