Investment property which has been let up till recently, but now untenanted, and on the market for sale ...
1) Do the current property expenses such as council tax, water rates, etc, count as deductible against sale proceeds for CGT? Or,
2) Are they part of the general in-year rental expenses and allowable against rental income from this property for the year? Or,
3) Are they just costs of ownership and as such are not allowable against either CGT or income tax? Or
4) Are they something else entirely?
I should know this, but I'm having one of those days.........
Thanks.
Replies (19)
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The general point
Was dealt with in relation to mortgage interest in the last week or so. I suspect the same principles would apply to any revenue costs.
Revenue costs can't, as far as I am aware, be treated as capital absent any specific provision to the contrary.
Was it the only letting property?
If the person owned another letting property, the property business would continue after the end of the letting of the property in question and I think that the subsequent running expenses could still be deducted from the overall rental income of the property business.
If it was the only property, I agree with Duncan. The property business ceased when the letting ceased and the subsequent running expenses cannot be deducted from any other income. Nor are they incidental costs of the eventual sale of the property which could be deducted from the disposal proceeds for CGT.
Property business
If the person owned another letting property, the property business would continue after the end of the letting of the property in question and I think that the subsequent running expenses could still be deducted from the overall rental income of the property business.
But is it not the case that when the decision is made not to rent out the property anymore, then it ceases to be part of the ongoing rental business, in which case the costs are not wholly and exclusively for the purpose of that business?
"The property business ceased
"The property business ceased when the letting ceased and the subsequent running expenses cannot be deducted from any other income."
If of course another rental property were acquired within three years, then the letting business would normally be regarded as ongoing. (By HMRC anyway, even if not by anybody who understands the concept of commencement and cessation of trade.)
Even though the rental business may have ceased, surely these are post cessation expenses are thus allowable?
Interesting thought, Alan
I said on a similar thread the distinctions between the tax treatment of "normal" businesses and residential letting were lost on me.
I'd claim them!
Picking up on a few points that have been made first:
Post cessation expenses (or post-cessation trade relief as it's called in the legislation - ITA 2007, s. 96 - s. 101) is only available to trades and not to property businesses (I hope that doesn't tax you Duncan!).I can't accept that a property that was let and which has now been decided to be sold is removed from the property business, such that any expenses relating to it cease to be wholly and exclusively for the purposes of the property business. That would be the case if it was put to some other use (like living in it), but I can't accept that as the position once it has been decided to sell it; property businesses do that sort of thing. The issue, to me, is whether the expenditure has been incurred after the property business has ceased.
I differ with other contributors on whether or not the property business has ceased though, as I will explain.
Let's imagine that at the very moment of my birth I inherited a UK rental property (already tenanted) and a year later (on my 1st birthday) my parents as my bare trustees decided they needed to sell it to pay for some expensive operation I desperately needed.
They stopped renting it, but did incur some charges (just like the OP) before it was actually sold.
Life then doesn't treat me too well financially, such that I'm able to invest in property again.
That is until shortly before my 100th birthday, when I have I lottery win, just big enough for me to buy myself a little rental property that I'm going to leave to my grandchildren in my will. I purchase the property (already tenanted and in the UK) on my 100th birthday and then duly die on my 101st birthday.
I've had two property businesses in my lifetime the one that commenced on the day I was born and ceased on my 1st birthday (when the tenant left) and the one that started on my 100th and ceased on my 101st birthday when I died.
They're two separate property businesses. HMRC's three-year "rule" doesn't apply, but it doesn't apply because it's wholly a fiction of HMRC's.
The legislation provides a different fiction entirely. What the legislation says (ITTOIA 2005, s. 264) is that "a person's UK property business consists of every business which the person carries on for generating income from land in the UK and every transaction which the person enters into for that purpose otherwise than in the course of such a business." There's corresponding provision for an overseas property business in s. 265
Now if ITTOIA 2005, s. 264 had applied throughout my life what it does is it deems both of my property businesses to be one single property business and the transactions that happened after the (sub-)property business in the year of my birth had ceased to be transactions of that deemed property business.
That's the legislation's fiction, and under that fiction I (being a tenacious little infant) duly claimed those expenses as expenses incurred wholly and exclusively for the purposes of my deemed property business (not having been incurred for any other purpose).
Very good, but on your first birthday when it is sold, you don't know you will have another property in the future ( Just like you didn't know I would comment on this 6 years later). Then when you are 100, its a bit late to go back and change your tax returns - as there's a 4 year limit... so maybe that's where HMRCs imaginary 3 /4 year rule comes from, pure practicality.
Investment property which has been let up till recently, but now untenanted, and on the market for sale ...
1) Do the current property expenses such as council tax, water rates, etc, count as deductible against sale proceeds for CGT? Or,
2) Are they part of the general in-year rental expenses and allowable against rental income from this property for the year? Or,
3) Are they just costs of ownership and as such are not allowable against either CGT or income tax? Or
4) Are they something else entirely?
I should know this, but I'm having one of those days.........
Thanks.
Sorry to resurrect this thread but it seems the right place for my question.
A student let was put up for sale after student left in June. Sold the following March. No other let property.
I know the void period costs incurred are not allowable against rental income. But am specifically asking here about the house clearance costs. These were incurred close to sale date, not after students left - just in case the buyer wanted to student let (they didn't) - the cost was to clear out the furniture and fittings used by the students.
My gut feeling is no - especially given the date the cost was incurred - but would be grateful for your thoughts?
Ta!
"I know the void period costs incurred are not allowable against rental income."
What makes you think that?
I take it that you are intending to apply Steve Kirby's argument that the property letting business hasn't ceased but is merely in abeyance.
No, I do think the property letting has ceased. I think it ceased in June 2020 when the property was put on the market. And she has no other rental income.
That's why I think the void period costs are not allowable against rental income.
That explains it.
For the avoidance of doubt running expenses incurred during void periods are allowable. But as you have rejected SK's argument, then I agree with you that the costs aren't allowable. This because they were incurred after there ceased to be a letting business. Costs incurred during a hiatus in it ,as I have said, are allowable. Don't understand why you complicated matters by talking of void periods when there is no void period.
It's a void period in that there was no letting income.
My question revolves around whether costs can be claimed for clearing the place, given the furniture and fixtures were used by the letting trade and obviously costs to clear will be incurred after rent stops.
I feeling is they are not allowable, but they are over 1k, so I thought it worth getting others views on this.
Yes, but voids have to be surrounded by something, namely a void needs to be bookended by periods of letting.
Relief is foundering on your view that SK's argument is wrong, or perhaps you and your client simply wanting a quiet life. What holes (voids, perhaps?) do you see in it?
Yes, but voids have to be surrounded by something, namely a void needs to be bookended by periods of letting.
Relief is foundering on your view that SK's argument is wrong, or perhaps you and your client simply wanting a quiet life. What holes (voids, perhaps?) do you see in it?
I am convinced when I studied (pre 1991) voids were used as a description for both and we learned the situation was different for a void ending with a sale versus a void aiming to relet and, indeed, ending with reletting. But that's by the by.
My question, reworded, is simply to request clarification that I am right with my conclusion that the house clearance isn't allowable. Given my elderly clients personal situation, she will not be letting again and I would not want to be in the position to try and argue the same with HMRC.
Thank you for that clarification.