Self Assessment - Property section

[Paul N]

Hopefully this will just be a set of yes no answers.

In March 2010 I got rid of my tenent as I thought I would sell the house that I rent out as I was getting married and family on the way etc. So during April I spent my weekends tidying the place up to improve my chances of selling it and furnished it from late April. It went on the market in late April but despite some early interest it never sold and eventually interest dwindled to nothing and the costs and time became too much to bare so I re-rented it from September with a view to selling it on once the property market improves. (wish that was looking soon). As such there were some considerable costs that I incurred and I was wondering if any of them are allowable expenses

These include

1) Council tax whilst the property was furnished but not rented
2) Storage for the furnishing as when I eventually re-rented the property the furniture had to go some where as the tenet wanted to rent it unfurnished.
3) Insurance for goods whilst they were in storage. Subsequently just sold them all off as it is not looking likely that we will sell the property soon.
4) To release some capital I decided to remortgage so we could get a bigger house for the growing family. This came with legal fees, and setup fees etc
5) Redecorating costs

Can any of these costs be classified as allowable expenses?

Thanks in advance for your help

Paul

[Tax Champion]

This is a complete break in your rental "business", so only normal pre-trading expenses might be allowed - this automatically excludes anything to do with the furniture, which is unrelated to the letting.
So -
1, 2 &3. No
4. Yes, provided the re-mortgage is no more than the market value at the time of re-letting
5 . Yes, as you would normally redecorate for a new tenant.

[Incredulum]

Hmmm. I'm not sure I entirely agree, though I do of course see your point of view.

I really don't think that the rental business ceased - HMRC generally look for a three year gap, otherwise property businesses tend to continue. I really don't think that the property ever came out of the rental business and was then reintroduced as you suggest. I am far happier with the idea that the property remained within the rental business, albeit that it became dormant for a while whilst being marketed.

1) Dubious. Though I think there is a reasonable case for claiming a deduction.
2) Yes, as the furniture belongs to the rental business (it being used to dress the house for marketing for rent) and whilst not being used has to be stored.
3) Yes, as 2.
4) I don't think it's that easy to rebase the value of a property. So only up to the value when the property was initially acquired (or, if the first and only property, the value when first let). In fact on the basis that the property business was ongoing, then the answer must be no. And the costs may be apportioned in the same way.
5) Yes - I'm not certain that on your analysis the answer is so decisively yes as it has a potential capital feel about it.

[maths]

Difficult as the answers depend upon the specific facts.

However, if a conscious decision was taken to stop renting the property after the tenant left as it was intended to sell it and no tenants remained in the property during the period of attempted sale and steps were taken to improve saleability (eg installation of furnishings) i think it is strongly arguable that the former property business ceased (assuming no other properties are owned and rented out).

I also assume that during this period the house was not advertised as available for letting.

The 3 years to which incredulum refers is I think inapplicable to property businesses comprised of one property only but in any event is a simple guide to be considered in certain circumstances.

[Incredulum]

The 3 years to which incredulum refers is I think inapplicable to property businesses comprised of one property only but in any event is a simple guide to be considered in certain circumstances.

The three years is a very difficult point. It is a hangover from old (pre April 1998) Schedule A; HMRC's own guidance includes it as a rule of thumb. I must point out I think they are completely wrong as the new Schedule A rules bring in trading principles and I think for the circumstances outlined then strictly the business has ceased and restarted. However HMRC do not seem to take this point, and so I think the better view is that the business has not ceased. As it has not ceased, deductions are still available for these costs.

A general rule of thumb for rental businesses is that the old business stops where there is an interval of more than three years and different properties are let in the taxpayer’s old and new activities. We offer this for guidance only. In practice, we will not normally suggest that the old business stopped where the gap is less than three years and the taxpayer was trying to continue. But the taxpayer would need to provide convincing evidence to show that the same business was carried on where the gap is three years or more.

I am entirely happy that it is applicable to property businesses of only one property. Firstly because on winding down a business there will (almost) always be just one property left before there are none, and there will (almost) always be just one property at the point the first acquisition is made. And secondly because I have experience of this point with SPV companies - large commercial operations seldom have more than one property at a time in a single company.


I certainly do not think that it is possible to rebase a let property (for the purposes of calculating the maximum deductible debt interest) so simply. I think that if OP had moved himself in and then moved out again he would have had exactly that opportunity as the property would clearly have left the rental business.

[maths]

I thought you might be back if i put in the specific reference to your comments !!

However, in the current case of (i assume) a single let, i would suggest it very unlikely that the 3 year gap would apply and in the current case the individual was not trying to continue his letting business; he had taken the decision to cease that business.

The fact that at a later date he decided due to inability to sell to start renting again does not retrospectively alter the fact of the prior cessation.

I suspect we will have to agree to disagree.

[Incredulum]

As mentioned, I think technically the better view is that you are correct, but I do not think that HMRC's published guidance agrees with that, and I do not think they take the point.