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Pre-letting costs

Are these allowable

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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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Hallerud at Easter
By DJKL
18th Nov 2019 16:11

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?

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By taxwizard
18th Nov 2019 22:26

The letting business started around 5 years ago

The lease date is October 2019

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?

To be honest I do not know.

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Hallerud at Easter
By DJKL
19th Nov 2019 00:43

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.

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Replying to DJKL:
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By taxwizard
19th Nov 2019 10:02

Thank you for your response. I do agree with you and you have given me some food for thought especially the fact the tenant free rent could be classed as income

I don't think the landlord took interest in the property until late in the tax year 2018-19. Its a difficult one and inclined to disallow the costs for 2018-19 but allow the 100% costs for CT, mortgage interest in the subsequent tax year even though the property was not "officially" rented until October 2019.

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Replying to taxwizard:
Hallerud at Easter
By DJKL
19th Nov 2019 10:46

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.

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Replying to DJKL:
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By taxwizard
19th Nov 2019 12:21

The Property in question was inherited around four years actually and only let in October 2019 for whatever reason. From April 2019 the tenants were working on the property and staying there rent free. From October 2019 the tenants started to pay rent.

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Replying to taxwizard:
Hallerud at Easter
By DJKL
19th Nov 2019 12:27

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.

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Replying to taxwizard:
Hallerud at Easter
By DJKL
19th Nov 2019 12:28

Duplicate

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Replying to taxwizard:
By ireallyshouldknowthisbut
19th Nov 2019 17:30

Are the tenants friends and family?

Remember the ring fenced rules for losses on non-market lets.

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