Foreign Rental Income - Allowable Wear & Tear vs Enhancement Expenditure

A2fan

Anybody know how the following should be treated?

Situation is:

AN Other owns UK property - which gives rise to foreign rental income - Schedule D Case III & is never owner occupied.....

There was refurbishment expenditure prior to letting - sample items would be:

* Painting
* Doors/Windows
* New Kitchen
* Furniture
* Carpets.....

The above was all completed for a single price - a breakdown isn't currently available for individual components....although it might be possible to obtain....

I understand from Revenue that not all of this expenditure will be treated as capital expenditure - however the information on what is treated as Capital and what is treated as enhancement from both Revenue website and guidelines doesn't specifically refer to Case III and appears to be in relation to Case V....ie painting will be allowed as an expense, new kitchen & doors will not be allowed as capital items either as they are deemed to be enhancements(to be claimed if/when CGT arises presumably)....however furniture & carpets will qualify for annual Wear & Tear of 12.5%

I am just wondering if the same criteria re Wear & Tear etc apply to Case III, when it is foreign rent, as currently apply to Case V?

Also is it correct that Wear & Tear allowance will be restricted to the x number of months that that the property was occupied by tenants?
ie effectively extending the period over which the Wear & Tear allowance can be claimed beyond 8 years by matching the amount of W&T claimed to periods of occupancy....?

Any info appreciated
Thanks in advance:)

Mr. Incognito

Foreign rental income is case III and there are no allowable deductions for wear and tear and capital allowances etc.

The logic is that you will be oblidged to file a return in the jurisdiction the property is located as that has primary taxing rights on the income earned from the property that is located there and these should be available locally.

A2fan

SetantaL wrote: »

Foreign rental income is case III and there are no allowable deductions for wear and tear and capital allowances etc.

Agreed re Case III treatment....but from what I have seen on the Revenue website it doesn't appear to be correct to say that there are no allowable deductions for W&T against Case III income....

See the 'Sample Foreign Rental Income Tax Calculation' on the Revenue website - it clearly states:

'....for certain other expenditure, capital allowances may be deducted for wear and tear.....' and the example details time apportioned capital allowances for a barbecue and refrigerator.....

As an Irish resident & domiciled person AN Other is subject to Irish tax on worldwide income so the net effect of paying UK tax on UK rental income will be nil as total foreign income of an Irish resident will be subject to Irish tax in any case, with a credit arising for any UK tax paid if I understand correctly.....

I believe that there is a form that can be completed allowing Irish resident to receive UK rental income free of UK tax ie effectively file a nil return in the UK, so there could also be an additional cashflow advantage, given that UK's tax year end is 5 April....

Any further ideas?

Mr. Incognito

http://www.revenue.ie/index.htm?/leaflets/it70.htm

It seems for foeign rents deductions are allowed for rates, repairs, insurance, management etc. I'm surprised but there you go.

I believe that there is a form that can be completed allowing Irish resident to receive UK rental income free of UK tax ie effectively file a nil return in the UK, so there could also be an additional cashflow advantage, given that UK's tax year end is 5 April....

You'd probably have to contact the UK Revenue for info on this.