If you have a property rental business, you’ll be aware from time to time that there is a preparation phase before renting out the property. In this phase, expenses are naturally incurred. What relief is available for expenses incurred before the property is let?

GETTING STARTED

With a property rental business, the business normally starts when the letting starts. Once the letting has commenced, relief is available by the usual rules. The usual rule is if the expense is incurred wholly and exclusively for the business.  Capital expenditure relief is given in agreement with the rules and this is dependent on whether the accounts are being prepared on an accrual or a cash basis.

It’s important to get the start date correct as this draws a line between the pre-commencement expenditure and expenses incurred when running the business. 

WHAT IS THE RELIEF FOR PRE-COMMENCEMENT?

This doesn’t mean that no relief is available prior to the letting start date. A landlord may be able to claim some relief for expenses that have been incurred for a property rental business before it started to trade.

To qualify, the below criteria must be satisfied:

  • The expenditure is not otherwise allowable for tax purposes
  • The expenditure would have been allowed as a deduction if it had been incurred after the rental business started
  • The expenditure is incurred within seven years before the date on which the property rental business started

Therefore, for the expenditure to be deductible, it must be revenue in nature and incurred wholly and exclusively for the rental property business.

If the above criteria is met, the qualifying pre-commencement expenditure is treated as incurred on the day the business commenced and this would be deductible when calculating the profits for the first accounting period.

Example

Jasmin purchased an investment property in January 2021 which she plans to let out. In preparing to let the property, she incurs administration expenses of £1,200 and undertakes repairs costing £3,000. The property is first let on 28 June 2021. Jasmin claims relief for the pre-commencement expenses of £4,200, which are treated as if they had been incurred on 28 June 2021 – the date on which the property rental business commenced.

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Any questions?

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