Can I claim these expenses for tax purposes?
Question My tenants are moving out, so I'm going to put my rental property on the market to sell it, but then purchase another property to run as a furnished holiday letting (FHL). Can I offset expenses such as council tax, mileage, fuel etc. against my tax bill? The tenants moved out in the first week of June. Rent was paid for April and May, which is taxable in 2019/20. The property could take six months to sell, so I am now getting to the end of the tax year and still have to find another property. My understanding is that I can 'bank' these expenses with HMRC to offset against the following years' tax bill (I think it's something like three years then I can’t use the expenses). I understand what I can claim in capital gains tax (CGT), but it’s what to do with expenses incurred in the interim period that I'm unsure about.
Arthur Weller replies:
These post-rental expenses of council tax, mileage, fuel, etc. cannot be claimed as allowable expenses to offset against the capital gain when the property is sold - see HMRC’s Capital Gains manual at CG15250. In HMRC’s Property Income manual at PIM2510, it states that a letting business has ceased 'For example, if the business only consisted of letting a single house, it would cease when the tenant left and the customer began to use the house as a private residence or, alternatively, when they decided the house wouldn’t be re-let.' The fact that you are planning to buy a new property and rent it out as a FHL is not relevant because in UK tax law that is considered to be a separate business (see PIM4115). So, it would appear that your property letting business is ceasing on 31 May. So, the 'three-year rule' you mention, referred to in PIM2510, is not relevant. However, you are most likely to succeed under the 'post-cessation expenses' rules (see PIM3000). To quote: 'Another example might be the cost of background heating for empty premises to keep down condensation and so maintain the value of the property for later sale.' So, you could certainly claim these expenses against your rental receipts of April and June.
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