Tax year 11/12 - HMRC and I fighting over "mortgage interest relief" on 2 of my properties that were undergoing refurbishment and not available for letting in that year 11/12 I claimed this relief and argued they were/are part of my property business and were previously let. Any thoughts or case law, please. HMRC officer says "NO, you are wrong, you cannot claim this!". I have already complained officially but he is adamant. I have until 31st December to go back to him. HELP, please, thank you.- Kevin
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How many properties have you got?
If they're part of a common estate, it must be treated as a whole, so individual properties don't matter.
Allowable
As the assets concerned were temporarily incapacitated from letting that did not create a reason for disallowance of costs relating to them (apart from any capital element if applicable, eg. alterations). It might be different if a property had not previously been let having been a private residence of the landlord or a formerly let property was being refurbished to become the landlord's private residence - in these two circumstances I can see room for an arguement with HMRC and potentially then a disallowance of interest / repair costs.
Talking through his proverbial
Interest should be allowable even for a single property. The test is that the loan was taken out to acquire property used in a rental business. Provided that the property is otherwise fully let, the Inspector is stretching things to suggest that while it us undergoing repair it is not being used in a property rental business. Would he propose, for instance, that capital allowances on a van be restricted by 2/365ths because the van is in the garage for being repairs and therefore not being "used for the purposes of the trade"? Would he have lifted an eyebrow if the flat had been under repair (and unlet) for only 11 days? I doubt it - but the principle is the same - shouldn't matter if it's 11 days or 11 months. Tell him that your circumstances are quite different from those of the exmples that he cited.
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Refuse to agree. State clearly in a letter that he is wrong and PIM2015 is not the law, and even if it was does not apply to your case. Request for the officer to be replaced by someone with more experience in these matters.
Much of the costs you run up from that point can be recovered via a formal complaint, so if you are the landlord and not an accountant do consider engaging one, beating the little [***] over the head with some legislation and having the pleasure of HMRC refunding much if not all their fees.
Disgraceful incompetence from HMRC, as usual
Make a formal complaint about this clown's incompetence and ask for the matter to be reviewed by someone who has a basic level of knowledge of property tax.
Quote point 5 of the Taxpayers' Charter ("we will...make sure you are dealt with by people who have the right level of expertise")
Look at PIM 2510, and the second bullet point under "Guidelines on Cessation", which says:
"You may also accept that the business has not ceased in cases where the property is temporarily unavailable while work on repairs or alterations are (sic) carried out"
If the business has not ceased, its expenses, including interest, are allowable.