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Expenses may be incurred in the setting up of a letting business before the first rental receipt is received (for example, travel, phone, advertising, etc.). If so, deduction may be possible once the letting starts.

Relief is only allowable under these special rules where the expenditure is:

• incurred within a period of seven years before the date the rental business actually starts; and
• is not otherwise allowable as a deduction for tax purposes (i.e. against any other income or capital); and
• would have been allowed as a deduction if it had been incurred after the rental business started.

Letting expenditure incurred pre-commencement is treated as having been incurred on the day on which the rental business starts and then added to other allowable letting expenses incurred during the tax year.

This total amount is then deducted from the total letting receipts for that year.

The expenses must not be for the purchase of capital items. Capital expenditure is potentially deductible but there are separate rules of calculation.

Costs incurred in relation to the actual purchase of the property, including legal fees, are a capital cost allowed against the proceeds of the eventual disposal of property under the capital gains tax rules.