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Where Taxpayers and Advisers Meet

Letting relief - need to be on a commercial basis?

AmandaHolyhead
Posts: 9
Joined: Tue Jan 12, 2016 1:44 pm

Letting relief - need to be on a commercial basis?

Postby AmandaHolyhead » Tue Jul 19, 2016 4:35 pm

Hello, could someone let me know please if Letting Relief from CGT only applies where the tenancy was on a commercial basis and if so what constitutes a commercial basis.

Situation is that when I moved out of my flat when I got married I let it to a friend initially at £100 per week plus bills then after 6 months or so at £600 a month plus bills. No formal legally drawn up tenancy agreement but we had a detailed email exchange saying who was responsible for what bills (I paid water rates and service charge, she paid everything else), notice periods etc. £100 per week being less than market rent, £600 per month being more or less market rent, I might have got £750 or so if I had marketed via an agent.

Are the revenue likely to query this as un-commercial and if they do does it mean Letting Relief does not apply?

Thanks

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Re: Letting relief - need to be on a commercial basis?

Postby jpcentral » Tue Jul 19, 2016 4:56 pm

Letting on an uncommercial basis doesn't affect your right to Letting Relief or PRR.

What it does affect is the ability to create a loss for income tax purposes. If a property is let to a friend/relative at a rent which is below the market rent for that property, expenses can only be claimed up to the amount of rental income received.

Presumably you have declared the income from letting on a tax return and didn't claim any losses to carry forward. If so, you should have no problem. If you haven't declared the income, HMRC might raise a query.

As you say, £600 could be considered a commercial rent if you had the intention of making the property attractive to a tenant, maintaining full occupancy and avoiding agent's fees. Allowing a reduction for the first six months could be for any number of reasons. I once rented a property where the landlord gave me a reduced rent in exchange for me decorating it. Maybe there was a similar arrangement with your friend?
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

maths
Posts: 7580
Joined: Wed Aug 06, 2008 3:25 pm

Re: Letting relief - need to be on a commercial basis?

Postby maths » Tue Jul 19, 2016 4:59 pm

As far as I am aware there is no legislation guidance on the point.

It does not have to be a market rent nor does it need to be let to third parties.

In practice I would suggest that the level of rent should broadly cover costs of the landlord.

AmandaHolyhead
Posts: 9
Joined: Tue Jan 12, 2016 1:44 pm

Re: Letting relief - need to be on a commercial basis?

Postby AmandaHolyhead » Tue Jul 19, 2016 5:16 pm

Thanks very much

Actually this income has not been disclosed - I am planning on filling out a let property disclosure form shortly

During the time the property was let the council had an improvement scheme - roof repairs, new insulation, new doors, new front gates etc - and I picked up a £3202 bill for that. Is that cost an allowable deduction when calculating my CGT?

jpcentral
Posts: 924
Joined: Wed Aug 06, 2008 3:28 pm
Location: Loughborough
Contact:

Re: Letting relief - need to be on a commercial basis?

Postby jpcentral » Wed Jul 20, 2016 8:30 am

Most of those sound like revenue expenses to me so would normally be deductible against income - but there are a lot of rules covering this area and a lot more information required before giving a definitive answer.

If the property was in need of that sort of expenditure it could give a reason for not charging a full commercial rent.

A lot will depend on the amounts and periods involved. It doesn't sound as if it has been a long term income source so your PRR, Letting Relief and Annual Allowance might cover the whole of any CGT liability.
John Perry
Central Business Services
Loughborough
http://www.centralbusiness.co.uk

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: Letting relief - need to be on a commercial basis?

Postby section 44 » Wed Jul 20, 2016 11:36 am

Letting on an uncommercial basis doesn't affect your right to Letting Relief or PRR.
I'm sceptical.

What is letting on an uncommercial basis, can you define it or perhaps provide some examples?

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: Letting relief - need to be on a commercial basis?

Postby Peter D » Wed Jul 20, 2016 12:35 pm

I assume you are selling the property. How long have you let the property for. I ask this as LR is not available for the last 18 months of ownership. Regards Peter


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