Start of a property rental business

A property rental business will have a start date, and it is important to know when this is. A landlord will normally undertake some preparatory work before letting their first property, and it is important to know when the preparatory work ends and the property business begins.

In their Property Income Manual, HMRC makes the point that ‘where the rental business is letting property, the business can’t begin until the first property is let.’ Once the first property has been let, the property rental business exists, and the landlord can deduct subsequent expenses incurred wholly and exclusively for the business when calculating the profits of that business.

Single property business

It is important to note that, regardless of the number of properties that a landlord has, they will normally be treated as parts of the same property business where owned by the same person acting in the same legal capacity. However, where a landlord has properties in the UK and outside the UK, the UK properties will form one rental business and the overseas properties another rental business. Although separate rules currently apply to furnished holiday lettings, a landlord who has furnished holiday lettings and other lets in the UK will only have a single UK property business.

Acquiring further properties

Once the first property has been let and the property business is up and running, any expenditure incurred in preparation to letting second and subsequent properties will be incurred by the existing property rental business and will be deductible in calculating the profits of that business, as long as the wholly and exclusively test is met. The pre-letting expenditure rules are not relevant to preparatory activities concerning subsequent properties once the business has started.

Pre-letting expenses

Expenses incurred before the first let may be deductible under the pre-trading rules. Under these rules, the expense is deductible if it is incurred in the seven years before the start of the property rental business, and the expense would have been deductible if it had been incurred once the property rental business had started. Where these conditions are met, the expense is treated as if it had been incurred on the day on which the property rental business started, and relief is given in calculating the rental profits for that period.

Similar rules apply to capital expenditure. Where capital allowances are available, any qualifying expenditure is treated as incurred on the start date and is taken into account in calculating capital allowances for the first period of account.

Partner note: ITTOIA 2005, s. 57; CTA 2009, s. 61; HMRC’s Property Income Manual at PIM2505.

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