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Property Costs incurred when stopped renting

Client has incurred legal fees related to renting out a property no longer being rented out

I have a client who in this tax year has incurred legal fees in this tax year for a property which was rented out in the last tax year. The tenant had rent arrears and had left the property in a state. The client had to incurr legal costs to get the tenant evicted and now repair costs to the property. The client has now decided to no longer rent out the property and has moved into the property herself.

As there is no longer any rental revenue (this was the only property which was rented out), there is nothing to offset these costs against. Are these costs now a loss to her, and the HMRC rule of losses carried forward are lost as they can not be offset against any other income, unless the property is rented out in the next three years. Or should we look at getting last years tax return re-opened to claim these cost and get her tax return for last year?

 

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10th Jan 2019 16:00

Rather than post a long reply I'll point you to this; https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim90080 and add that if the expenses would have been deductible when the property rental business was active then they are when incurred after letting has ceased.

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10th Jan 2019 16:03

Suspect you are correct re no relief.

Is the cash basis as default for property income 17/18 and subsequent or 18/19?

Assuming accruals basis is available, you'd have to see whether it would be appropriate to have accrued the expenses under normal accounting standards.

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to Accountant A
10th Jan 2019 16:11

I assume your post was in preparation when mine arrived - just to be clear relief would be allowed under the post cessation expenses rule if the legal fees related to the collection of unpaid rents.

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to tonycourt
10th Jan 2019 20:27

tonycourt wrote:

I assume your post was in preparation when mine arrived - just to be clear relief would be allowed under the post cessation expenses rule if the legal fees related to the collection of unpaid rents.

I'm obviously losing it. Could have sworn there was a thread, in the last year or so, about 'post-letting' expenses where there was a big debate which never mentioned that. At least I have learned something today.

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to Accountant A
10th Jan 2019 20:49

I know what you mean - it's the "Didn't I used to know that" feeling. What's worse is that the older I get the more of them I have.

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to Accountant A
10th Jan 2019 21:27

This isn't the question I was thinking of, but here Steve Kesby (remember him? He always had something useful to say) refers to ' post-cessation trade relief' S96 ITA 2007. He suggests that isn't available to property businesses.

https://www.accountingweb.co.uk/any-answers/rental-property-expenses-whe...

In fact, S125 'Post-cessation property relief' (which Steve didn't mention) looks to be of assistance and is, in fact, the HMRC manual reference:

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim3000

So what the difference between the ITA 2007 provisions and the IT(TOI)A 2005 are, as regards post-cessation expenses, I don't know.

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10th Jan 2019 16:48

I agree with tony. I would cheerfully claim some of these costs, if not all.

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By srbacc
13th Jan 2019 12:47

Thank you for your responses everyone.

So according to the Property Income Manual I have determined that relief can be sought. The tenants were only evicted in July 2017, but did not pay any rent in this period of time. So although there is no income, as the rental income was not received, there will be the costs.

In order to claim relief should I still do a Property Income form for the Self Assessment and put the expense down, and make a note that there is no income as the rent was not paid and that the tax payer has now ceased renting the property and there is no further income to offset against these costs and therefore would like to claim the relief against their 2017/18 Tax return.

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