Implication of temporarily living in rental property

Hi this is my first question on the forum and appreciate everyone’s help in advance. I have rented my only property for the last 10 years whilst I lived overseas. I have now returned to the uk and intend to live in the property for a maximum of 12 months. The house is now in a poor state of repair due to 10 years of ware and tare and damage from tenancies. My plan is to get approx 70k of work done to bring the property up to standard for renting again and live in it as I do this work. Once the work is complete and the property is ready to rent again I will buy a house to live in and re-let the rental house. My question is- can I deduct the costs of all the repairs from this current tax year and and costs incurred in the next tax year against future rent once it’s let again m? Are there any implications of me living in the property as the costs are being incurred? Are there any other implications of this plan I should be thinking of, I’m a higher rate tax payer and have a residential mortgage (I had permission to let whilst I was abroad). Thanks!

Hi,

If you have a continuing rental business then these expenses may be allowable as long as they are of a revenue nature and not capital and are wholly and exclusively for the rental business, which is covered in BIM37007 here:

BIM37007 - Wholly and exclusively: overview

PIM2510 may also be of use as it outlines that there are exceptions for temporary pause depending on the level of changes made and also the length of time between lettings. Under the general rule of thumb, a three year period of no occupancy would constitute the ending to the rental business, which does not match your situation.

PIM2510 - Beginning and end of a rental business: cessation

Thank you.

Hi Thanks for the response. The repairs are all of a revenue nature. Would you mind being slightly less vague on the following points please? The booklet you refer me to doesn’t give an example similar to mine. This could be a very expensive mistake if I cannot deduct these costs from future revenues. 1. How would the repairs not be wholly and exclusively for the rental business? Would how long I live in the property before re-renting it have a bearing on this? 2. Continuing the business is not particularly important. The most important factor is being able to deduct these expenses from future revenues once I market the property again. Can you be more specific on this point please? Could the costs be classed as preparatory costs for the next rental lease even though I’m living in the property and the costs incurred are not in the same tax year? Thanks Simon

Hi,

PIM2510 says that “You should normally treat the business as ceasing if, after letting stops, the property is put to some other use, for example the landlord lives in it himself.”

As you intend to live within the rental property for a maximum 12 months, within this time the property not being available to rent nor are you attempting to rent the property out, HMRC would class your rental business to have ceased in its entirety.

This would then have an effect on any potential expenses incurred within the previous rental business before cessation as losses or expenses from a previous rental business cannot be set against profits of the second if in future there are further lettings carried out.

In relation to the wholly and exclusively rule, in the case of using the property as your main residence, these expenses would not have been incurred carrying out the rental business so would not be allowable, even if they are a revenue nature.

Thank you.