Tax Allowable Expenses for rental income from property - legal and professional fee

Good morning, I am a non-resident landlord, I purchased a property for buy to let last year. I let my property to a tenant via AST tenancy agreement for 2 years with a 1 year break clause (Either party can terminate tenancy after first year). It incurs a letting agent fee for preparation of AST tenancy agreement. When I try to fill the tax assessment and read together with the SA105 Notes, I think the above agent fee for preparation of AST tenancy agreement is allowable expense for tax deduction because it is revenue nature and incurred wholly and exclusively for the purpose of rental business. When I read Box 27 Legal, management and other professional fees in SA105 Notes and similar paragraph in PIM2120, I am confused and it mentions "You cannot claim any costs for the first letting or subletting of a property for more than a year", If the above paragraph is applicable to my case, I cannot claim the letting agent fee for preparation of above mentioned AST tenancy agreement. Please kindly advise if the paragraph "You cannot claim any costs for the first letting or subletting of a property for more than a year" is applicable to general AST tenancy agreement, just like my case? If it applies to AST tenancy agreement, it only applies to first letting or sub-letting? I can claim the agent fee of preparation of AST tenancy agreement for subsequent letting or subletting after the first letting or sub-letting? Thank you very much for your attention. Your early advice will be much appreciated.

Hi
Thank you for your question.
I agree , the paragraph does apply to you any such expenses incurred for your first letting would be capital in nature.
Any subsequent lettings such expenses would qualify as revenue in nature.
Thankyou.
Regards.

Dear Sir/ Madam, Thank you for your prompt reply. The paragraph apply due to tenancy of my first letting is more than a year? If letting is a year or less, can I claim the letting agent fee for preparation of tenancy agreement? Your early reply will be much appreciated. Best Regards.

Hi HSNC,

The PIM2120 guidance reports "for more than one year" with no concessions for less than one year.
I have no advice on periods shorter than that.

Thank you. 

Hi I have 2 related questions 1. Would the agency fee which includes only advertising, conducting viewing and collecting prospective tenants details be tax deductible in the above case by HSNC? 2 When I first time let out my property, AST was for 12 months. Then, when I let out the property next time, AST was for 24 months. Would professional fees associated with the second letting of 24 months be allowable? Thank you

Hi,

You can see guidance here:

HS222 How to calculate your taxable profits (2022)

Thank you.

Hi There are no answers to my questions in this HS People who read PIM2120 already have read Help Sheets. Could anybody else answer my questions please? 1. Would the agency fee which includes only advertising, conducting viewing and collecting prospective tenants details be tax deductible in the above case by HSNC? This question relates to the face that advertising is deductible but agents are mentioned in Professional fees which are not deductible for the first letting more than 1 year. It is not clear whether agents fee for advertising, conducting viewing and collecting prospective tenants is classified as marketing & advertising (deductible) or professional fees (not deductible) 2 When I first time let out my property, AST was for 12 months. Then, when I let out the property next time, AST was for 24 months. Would professional fees associated with the second letting of 24 months be allowable? this question relates to clarifying of PIM2120 "You cannot claim any costs for the first letting or subletting of a property for more than a year" Does it mean "You cannot claim any costs WHEN YOUR first letting or subletting of a property IS for more than a year" or Does it mean "You cannot claim any costs WHEN YOU FIRST let or sublet a property for more than a year (EVEN IF BEFORE THAT YOU RENTED FOR LESS THAN A YEAR). " I hope this clarifies the questions.

Hi,
 

Thank you for your question. Expenses can be claimed for a rental business providing they are incurred wholly and exclusively for business purposes and are not of a capital nature. The guidance at PIM2120 is trying to draw attention between capital and revenue costs when it relates to legal and professional fees. The nature of the legal fees follows that of the matter to which they relate – so if the fees are incurred in relation to an item which is itself revenue in nature, the legal and professional fees are also revenue in nature. Likewise, legal fees that are incurred in connection with a matter that is capital in nature are also capital in nature. Legal fees that are revenue in nature would include, for example, fees incurred to recover unpaid rent, while legal fees that are capital in nature would include fees incurred in connection with the purchase of a property.  Revenue expenses of advertising for new tenants and conducting viewings are allowable to the extent that they are incurred solely for the rental business . Thank you.

When I first time let out my property, AST was for 12 months. Then, when I let out the property next time, AST was for 24 months. Would professional fees associated with the second letting of 24 months be allowable? this question relates to clarifying of PIM2120 "You cannot claim any costs for the first letting or subletting of a property for more than a year" Does it mean "You cannot claim any costs WHEN YOUR first letting or subletting of a property IS for more than a year" or Does it mean "You cannot claim any costs WHEN YOU FIRST let or sublet a property for more than a year (EVEN IF BEFORE THAT YOU RENTED FOR LESS THAN A YEAR). "

Hi,

Given the complexity of your query, we need more information to enable us to provide you with a detailed reply.  

Please therefore write to us outlining the full facts of the situation and detailing the expenses incurred. Please also enclose copies of the relevant tenancy agreements and ASTs.                                                    

Income Tax: general enquiries

Thank you.

According to the Property Notes, "You cannot claim any costs for the first letting or subletting of a property for more than a year." and "You can claim management fees paid to an agent for rent collection, advertising and administration legal and professional fees paid for renewing a lease (if the lease is for less than 50 years)" What does that mean for private residential tenancy agreements (Scotland) which are always open-ended?

Dear Sir or Madam, I am a new private landlord resident in Scotland. I purchased a property for buy-to-let last year. I let my property to a tenant via a Private Residential Tenancy Agreement. According to the Private Housing (Tenancies) (Scotland) Act (2016), this new tenancy must be used in Scotland for all new tenancies created on or after 1 December 2017. It is always an open-ended tenancy. The first tenant moved into the property in June 2022 and moved out in January 2023. According to SA 105 Notes 2023, "You cannot claim any costs for the first letting or subletting of a property for more than a year". Can you please let me know if this paragraph applies to the open-ended Private Residential Tenancy Agreement (Private Housing (Tenancies) (Scotland) Act (2016))? Are the letting agent’s fees for the marketing of the property and the preparation of the Private Residential Tenancy Agreement allowable expenses?

Hi T Nam
Thank you for your questions.
I would refer you to the guidance in the Property Income Manual.
PIM2020 on www.gov.uk.
If you have further questions I suggest you contact HMRC helpline on 0300 200 3310.