My client sole owner of two rental properties (was three)
One of the properties has been empty for three years and has been let only in October 2019 though work has been carried by the tenant from April 2019 who then subsequetly moved into the property in October.
We are completing the 2018-19 tax return and my client has claimed mileage, interest and council tax. I assume these costs would not be considered as pre-letting under HMRC PIM2505
What about pre-letting costs from April 2019 ?
Replies (9)
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When does the letting business start? (Not the paricular property the letting in general of property?)
Whilst not your question, what obligation was there on tenant (prospective tenant?) to do the works to the property, was that obligation within the lease executed or otherwise documented?
What date does lease (not occupation) start?
They are possibly just letting business costs unless the property unlet for 3 years was not within the letting business when they arose. the key is likely what was happening with it/how was it used/how and why was it acquired/ why unlet for three years, condition when acquired?
Re the lease I would want to see if the works by the tenant were in effect a premium possibly taxable on the landlord, one consideration would be whether these costs /works, met by the tenant,would have been, if they had been costs of the landlord,repairs or capital expenditure?
Term of lease might be helpful as would rent free period information in same and standard/spec of tenant works and how these addressed in the lease.
If property acquired in 2018/2019 why was it acquired , what condition,and how does this square with your comment that it was empty (Edit-previously unlet) for three years; is part of that period outwith your client's ownership.
Rather than the rent free it is more the works done that concern me, if I give you a stonking rent free but you need to do a and b to my property that is possibly a premium and then all the premium rules bite. (Not that we have much of this re our types of properties down here at the secondary/tertiary level)
I would want the facts here, if he acquires the prop in 2018/2019 , if it is available to let in his letting business from the outset (consider condition but prima facie if he did no work to it and let it in April then it was lettable in the condition he bought it as he managed to let it), he markets it to let then I would more likely allow all related costs as costs of the letting business.
You need to investigate with client and check the lease.
Yes- but what the lease says is key, you cannot really draw any conclusions about the works they have done without knowing why they did them and what obligation they had to do them.
Your problem is not really interpreting the tax position it is more a lack of facts, once you get the facts the tax position likely becomes clearer.
Are the tenants friends and family?
Remember the ring fenced rules for losses on non-market lets.