Is the Cost for Vacent Possession of a Property an Allowable Expense or Property Cost?
Question I had a tenant in my property for some 20 years and under AST from the time the law came in. Due to non payment of rent and nuisance being caused on numerous occasions, I decided to get vacant possession of my property. In the process I had to pay him £30,000. Is this payment allowed against my rental income in future? If not, is it an extra property cost to be claimed at the time of sale?
However, on page CG71262 of the HMRC Capital Gains Tax Manual it says that 'If a landlord makes a payment to a tenant to procure the surrender of a lease, that payment will qualify as allowable expenditure under TCGA92/S38 (1)(b), provided that it is reflected in the state or nature of the property at the date of its disposal by the landlord. An example of such expenditure which would not be reflected in the state or nature of the property at the date of disposal would be where, following the surrender of the old lease, the landlord granted a new lease on essentially the same terms.' This implies that it should be treated as a capital expense, to be claimed at the time of sale.
It must be either a capital or a revenue expense, it cannot be both. I think that perhaps the difference between the two statements is that when the payment is to the tenant, it is treated as a capital expense. Therefore, it must comply with the rule for allowable enhancement expenditure, i.e. it must be reflected in the state or nature of the property at the date of its disposal by the landlord. However, if the payment is to someone else, then it is a revenue expense.
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