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Property losses

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I have a client who had a rental property and made a loss in the 17/18 tax year.  He decided to live in the property after this and not rent it out so I did not carry forward the loss on the tax return as he told me he had ceased renting it out for 18/19 tax year.  He then decided to rent the same property out again in April 2019.... I am now filling out his 19/20 tax return and am unsure if I can carry forward and offset the previous 17/18 loss against this year's rental profit for two reasons: a) it was not officially carried forward in the previous tax returns and b) he ceased the rental business (albeit temporarily).  I cannot get through to HMRC agent helpline and just wondered if anyone knows if I can carry forward and offset the previous loss. 

Thank you

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By SXGuy
08th Jul 2020 15:10

I would carry it forward. What's stopping you amending the b/fwd loss on the last return?

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By Adam12345
08th Jul 2020 15:26

As you say, ‘he ceased the rental business’ and therefore the previous losses relate to a different ‘business’ and therefore cannot be carried forward.

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Scooby
By gainsborough
08th Jul 2020 15:32

I would get a little more background info from client first....did he elect for the house to be his main residence during that time in 2018/19? Where has he been living whilst property has been rented out?

< 3 years normally viewed as temporary but HMRC may argue that letting business ceased once client moved into it as his home. Answers to the above may help you take a view.

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Replying to gainsborough:
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By michjimblack
08th Jul 2020 18:21

Thank you for your reply. It is a bit complicated as the flat was in the basement of his house so when he stopped renting it out he technically did not move in but it still was part of his main residence....

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Replying to michjimblack:
Scooby
By gainsborough
09th Jul 2020 08:55

Is it a self-contained flat in the basement and, if so, did he actually use it as part of his main residence during 2018/19? If it was just left empty during that time, think you have reasonable grounds for carrying the loss forward.

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By ireallyshouldknowthisbut
08th Jul 2020 15:44

There is section in the property income manual that deals with when a rental business has or has not ceased.

Cant remember the reference but have a dig about. Its more generous than you might think, and you can easily amend your 17/18 return as its in time for a claim.

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By Tim Vane
08th Jul 2020 16:05

You cannot carry the loss forward as the business ceased from the moment he decided to stop renting and use the property for another purpose (in this case, to live in). This is assuming he had no other property rented. If he had not lived in the property he would be fine, but the legislation and HMRC guidance is very clear on this, so not sure what you have to gain by asking them directly (even if some idiot at HMRC says yes it's fine, that advice is not binding, you know it's not allowed and so it would be fraudulent to relieve the losses).

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Replying to Tim Vane:
RLI
By lionofludesch
08th Jul 2020 16:10

Tim Vane wrote:
....even if some idiot at HMRC says yes it's fine.....

[chuckle]

Cracker !!

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Replying to Tim Vane:
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By SXGuy
08th Jul 2020 18:29

Except the rental was his basement and he already lived in the property before, during and after. Little complicated.

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By Wanderer
08th Jul 2020 16:10

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4210
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2510

HMRC wrote:
For example, if the business only consisted of letting a single house, it would cease when the tenant left and the customer began to use the house as a private residence or, alternatively, when they decided the house wouldn’t be re-let.
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Scooby
By gainsborough
08th Jul 2020 16:30

I had an unusual situation for one of my clients in that they regularly went on long holidays (not at the moment obviously!) and let out their home for 6 months to 3 years at a time, moving back in between. No losses in that case but may be an example of a rare exception to the rules with a possible argument that there was a continuing letting business (and perhaps why PIM says "normally treat as ceasing").

Agree with Tim, however, please do not rely on the Agents Helpline for advice.

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Replying to gainsborough:
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By Dib
08th Jul 2020 16:40

Both Tim and Gainsborough seem to have missed the speech marks off "Help"line. :)

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By Tax Dragon
08th Jul 2020 17:20

I recall I think it was Steve Kesby (another insightful contributor that has fallen silent) once arguing that, once you had a property business, that business did not cease until you died. [HMRC does not agree, as has been pointed out here.]

I can't find that thread, but searching for it has unearthed a previous comment by Scoobs here https://www.accountingweb.co.uk/any-answers/property-rental-expenses-emp.... VNN also said he thought the property business died when you died.

I'm not endorsing that viewpoint. But noting that it appears to exist.

My search also unearthed these two threads by the same OP. Seem somehow relevant today.

https://www.accountingweb.co.uk/any-answers/cessation-of-property-busine...
https://www.accountingweb.co.uk/any-answers/cessation-of-a-property-busi...

I make no comment except... that Tax Dragon, what a [****] she was when she was younger. Is she still like that?

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Replying to Tax Dragon:
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By Tax Dragon
08th Jul 2020 18:33

I better add a provisional apology to Steve K in case I have misremembered and in so doing accidentally misrepresented him.

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Scooby
By gainsborough
08th Jul 2020 17:31

Tax Dragon....your posts in the second thread were more scathing than PNL's....didn't think that was possible :-)

EDIT (I am also assuming VNN was PNL unless my Scooby anagram skills have gone astray?)

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By Paul Crowley
08th Jul 2020 18:33

I was going to comment along the lines of losses go forward for ever. NEVER trust HMRC opinion of the law.
But then I am probably a qualified that is a disgrace to the profession

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Replying to Paul Crowley:
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By Tax Dragon
09th Jul 2020 10:01

I'm aiming to take some time away from Aweb, but the notification of this comment came in so....

Paul Crowley wrote:

NEVER trust HMRC opinion of the law.

I don't know about that, but I'm not about to argue. I do know that you must never IGNORE HMRC's published view of the law. You need to have pretty good grounds for acting against the published view [and no-one can pretend that this thread has provided those grounds in this case]. If you do come to a (well-grounded) view that differs from HMRC's published view, and decide to follow your view not theirs, then you must make a disclosure to that effect, explaining your grounds. Would you agree?

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By Tax Dragon
09th Jul 2020 10:04

Just as an aside while I'm here, how common is it to make a loss letting out part of the property where you live, if the let is commercial?

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
09th Jul 2020 11:44

Ignoring interest (which is more a subject apart) the only times I have really seen property losses (either part of lived in property or otherwise) is when there are stonking big repairs.

I remember one years ago re a distinct London flat, it had been let for about 10 years, tenant left, whole unit was revamped before being relet, rental loss, HMRC questions re same but all costs eventually accepted. I had another in Edinburgh more recently, a FHL where the refurbishment drove it into loss (it has been owned since the early 80s) but have never really had flats let that were adjacent to PPR

It is quite hard to have any residential property that is fit to let and sustains a rental loss.

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Replying to DJKL:
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By Tax Dragon
09th Jul 2020 12:13

Stonking big repairs to the property you live in are unlikely (normally) to be wholly and exclusively for the purpose of the business.

But we've gone of topic. My fault.

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