Some tenants treat your property with great care, but some don’t, and as the landlord you may be entitled to receive dilapidation payments from the tenant.
Given the recent changes to the way that property income and expenditure are treated in your tax return it is extremely important to establish whether this payment is treated as Income, in a similar way to rent, or Capital, and subject to capital gains treatment.
The answer to this is not clear cut and appears to be decided on a case by case basis and has more to do with your intention rather than at fixed rules. So if the payments are spent on returning the property to its original state then it will more than likely be treated as a capital receipt, if not then as income. But as your tax return and any subsequent challenge by the HMRC may be may months and possibly years after the event then the only way of proving this is by keeping records, at the time, in support of your actions.
If you are unsure as to the way forward then please contact us by using the contact sheet on our website www.milestone-solutions.co.uk