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Where Taxpayers and Advisers Meet

Allowable Expenses

Johnmeadows
Posts:7
Joined:Wed Dec 08, 2021 6:32 pm
Allowable Expenses

Postby Johnmeadows » Wed Nov 02, 2022 2:07 pm

Approx 20 years ago I was gifted 20 acres of agricultural land by my father. The land is 120 miles away from my home address and has been let throughout that period to 3 tenants for horse grazing. Management by me is very much hands off due to the distance and the nature of the tenancy agreements where the tenants are fully responsible for all ongoing maintenance of fences. I tend to visit perhaps 3 times a year and 1 of those visits would involve me supplying and delivering fence posts etc. Management on my part is dealing with phone calls, checking rent is paid by Direct debit on time and dealing with DEFRA. All this is achieved from my home address. 18 months ago a decision was made to sell the land and this process has involved more frequent visits to interview and appoint a land agent and solicitors for both conveyancing and dealing with serving notices. I consequently have completed more miles than usual in the last 18 months. A question arises about mileage being an "allowable expense" for my tax return. I

Is my place of work home? or is it the address of the land concerned?

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Allowable Expenses

Postby bd6759 » Thu Nov 03, 2022 10:14 am

Is my place of work home? or is it the address of the land concerned?
That is not the test. The only test is whether the expenses you incur are wholly and exclusively for the purpose of your trade (in this case “trade” is the receipt of income from land).

In any event the additional cost you have incurred recently are in connection with the disposal, and not in connection with the rents. These would not be allowable.

Kristian
Posts:2
Joined:Fri Jan 05, 2024 1:30 am

Re: Allowable Expenses

Postby Kristian » Fri Jan 05, 2024 1:47 am

I don't agree with bd6759. The trade you are involved with is Real Estate management. That will involve all manner of activity which could include the disposal of the asset. You may choose to re-invest in other real estate assets from the proceeds. So mileage costs associated with the disposal are deductible. I'm not sure whether you can deduct from CGT or just income tax, but you won't be able to deduct from both. As for where your base is, it seems perfectly reasonable to use your home as your base location, and therefore all mileage would be claimable at 45p up to 10k miles.

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Allowable Expenses

Postby Lambs » Fri Jan 05, 2024 8:13 pm

K, I also do not agree with B but, alas, for different reasons. And, even more alas, not for anything that ultimately matters.

B is of course correct to point out the criteria of "wholly and exclusively". However, it is generally implicit in a question about travelling / subsistence that you must NOT be undertaking private commuting but - simply put - be travelling between 2 places of work.

Therefore, you do in fact want your home to be a place of work, so that travelling to the property might ordinarily be considered "wholly and exclusively" a business journey. And HMRC does sometimes argue in some cases that a landlord's home is not a place of work because no substantive activity is undertaken there, particularly where the lion's share in the active management of the property is passed over to an agent. And if we were talking about the costs of travelling in the furtherance of J's property business, then B would be wrong: J's points would nail the heart of the matter.

Unfortunately, B then recovers by making the point that it would seem that J's purpose in making these journeys is to facilitate the disposal of a capital asset of the property business. It is therefore NOT a journey undertaken in the furtherance of letting property. Nor is it an allowable expense incurred incidental to the disposal of a fixed asset in the land. TCGA 1992 s 38 is quite narrowly prescriptive, and your closest shout would be travelling to ascertain market value. To my appreciation, YOUR costs in going to meet a professional are not normally deductible for CGT purposes even if the professional's own fees likely are.

Finally, K makes a logical point that the trade is that of "real estate management", implying that the buying and selling of land is intrinsic to such a trading activity. In other words, a cost against the income of selling "retail" stock on hand, rather than a (not allowable) cost of disposing of a capital asset.

But J appears to have a single plot of land, received by way of gift, that has been held for 20 years, and management is very "hands off". I am not sure how many "badges of trade" are left that K might hope to deploy, but I am pretty sure I will not need to take my shoes and socks off to count them.

In the absence of some as-yet unknown critical factor, this will not be a trading activity but an investment activity, that is - importantly - given a thin veneer of quasi-trading only so as to facilitate the administration of Income Tax for day-to-day expenses. Underneath, it is still not a trade*.

To summarise then these journeys to facilitate the sale of the land will not be relevant to J's Income Tax position, but nor will they meet the narrow scope of deductions for CGT purposes.

Regards all - and a Happy New Year,

Lambs

*I am saying this on the assumption that the arrangements with J's land are NOT the special kind of short-term grazing tenancy arrangement that MIGHT qualify as a trade. If they DID qualify, then you might in turn conceivably be in Business Asset Disposal Relief (Entrepreneurs' Relief) territory and eligible for only a 10% tax rate on your capital gain. But there is also a very important restriction (for scenarios like this) that basically says that the more your rent charge approaches a commercial rate, then the less BADR/ER you will get. (Although that may be only for ASSOCIATED disposals; I'd have to check). Depending on the overall value of the land, J, it MAY be worth speaking to a good tax adviser with experience of dealing with the taxation of agriculture, to see if you are in line for only a 10% tax charge.

Best wishes,

Lambs

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Allowable Expenses

Postby bd6759 » Fri Jan 05, 2024 10:24 pm

Not sure what you disagree with. All I said was that the correct (and only) test was the statutory formula: that the expense be wholly and exclusively incurred for purposes of the trade.

The problem with “simply put” is that it is simply wrong. Travel between places of work might meet the statutory test, but equally might not. In most cases whether the home is a place of work is irrelevant. Travel to a location from home could qualify even if the home is not a place of work. Conversely, travel to a place of business from home might not be allowable even if work is done at home.

The travel mentioned in the post was all in connection with the disposal of a capital asset. It is a capital expense which does not appear to be allowable in the CGT computation. But the scarcity of facts doesn’t help.

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Allowable Expenses

Postby Lambs » Sat Jan 06, 2024 1:28 pm

Not "simply wrong". Read Samadian. Properly.

Regards All,

Lambs

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Allowable Expenses

Postby bd6759 » Sat Jan 06, 2024 4:21 pm

My point was that allowable travel need not be between two places of work. Samadian does not suggest otherwise.

Lambs
Posts:1606
Joined:Wed Aug 06, 2008 3:15 pm

Re: Allowable Expenses

Postby Lambs » Sat Jan 06, 2024 5:31 pm

Clue: What did HMRC really, REALLY not like about the FTT judgment?

Regards All,

Lambs

bd6759
Posts:4234
Joined:Sat Feb 01, 2014 3:26 pm

Re: Allowable Expenses

Postby bd6759 » Sat Jan 06, 2024 7:52 pm

I give up.


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