Expenses (e.g. council tax, insurance) during time a rental property was empty awaiting sale?

Can expenses (e.g. council tax, insurance) during the time a rental property was empty awaiting sale be counted as deductable against previous years' income?

Hi Tristram,

If there is no trade i.e income from property then expenses suffered after trading cannot be claimed as it is not wholly and exclusively related to trade.
Regarding the sale of the property- you may wish to consoider the allowable costs for acquisition and disposal held under CG15250 of  our guidance.   

Thank you.

Hi HMRC I am looking to clarify what is in effect, the same question, and I don't understand your response to Tristram, ie that you state the void expenses are not allowable against rental while the propery is up for sale, as the HMRC Manuals, PIM2505 and PIM2510 state that eh cessation of a rental business is when the rental property is disposed of. 'Usually a rental business ceases when the last let property is disposed of or starts to be used for some other purpose.' (from PIM2510), and therefore as the costs incurred during the void period from the date the tenant left to the point at which the property is sold, should still be allowable against the income of the rental. Please can you clarify that this is the case, and if yo disagree why you are diagreeing with the PIMs? Thanks

Hi,

PIM 2510 states that if the property 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 would not be re-let.

If the house is put up for sale the intention is not to continue the rental business and related expediture, council tax, domestic bills, would not be allowable against the letting income up to cessation. A property could be up for sale for a considerable time and HMRC would not subsidise the related expenses.

Thank you.

Hi HMRC Continuing on the above can Council tax expenses for the period a property was empty awaiting sale be an allowable expense for CGT?

Hi,

Council Tax costs cannot be set against any gains arising from the disposal of the property. They can be set against any rental income that the property generates.

Thank you.

When my tenants moved out they left a poor state, including a broken boiler in winter. It took several weeks to make repairs to return the property to the state it was in before they arrived. Only after that had been done was I able to consider putting the property on the market - in this case, am I able to claim the Council Tax or any of the utility bills for the period when it was unusable as a rental property? While I recognise that I cannot claim for the time it was on the market, it took a reasonable time to make good and significant costs were incurred while that took place, which came out of the income earlier in the year. Thank you for responding to this query.

I should add that final payments from the tenants were made several weeks after they left, so there was some income while the property was being restored to a habitable state. Thank you

Hi Ksiko,
If there had been an intention to restore the property to let it out again we could consider these as allowable repairs/expenses against IFP. As you appear to have withdrawn the property from letting these outgoings/repairs will count as capital expenditure against capital gains arising from the ultimate sale of the property as they will enhance the asset and increase its sale price.
Thank you.
 

Thank you for the reply, I missed explaining that the tenants did not keep the property in a good state: the bath leaked and the boiler broke. I had to repair these, together with repainting some of the property to return it to the same state it was in prior to letting, there was no improvement work, it was re-painted white to be in the same state as before it was let. This page https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-case-studies#claiming-part-expenses states typical maintenance costs can be claimed against rental income, which are the costs that were incurred. It took time for these works to be completed, during which I incurred council tax and had to keep the property warm enough to avoid condensation. Can the council tax, electricity and gas costs be claimed as expenditure during the period when it was being brought back to the pre-tenancy state, as these were incurred while rental income was still due and then paid. I recognise that costs after the last of the rental income cannot be claimed. Thank you.

Reviewing PIM2510: "For a rental business to cease the customer must end all activities giving rise to receipts from land and property. " From that can I conclude that I can claim Council tax and other utilities until the date I received the last payment from the tenants? Thank you.

Note: the decision to sell was made a month after the last tenancy payment, as in that time I was investigating using different letting agencies as the one I was with was not doing a good job, and in the end I decided not to re-let and to sell. Can I conclude from what you say that I can incur the expenses until the point when the decision was made to not re-let and decided instead to sell the property? Thank you.

Hi,
As you have stated the rental business ceases when all activities giving rise to receipts from land and property ends.
You can claim expenses up until the last payment was received; for any expense to be allowable it has to meet the wholly and exclusively test.
See PIM2068  for types of expense and we would refer you to PIM3000  and BIM9000 for post cessation expenses.
Council tax isn’t usually an allowable deduction when computing rental profits so please consider the above guidance.
Thankyou.

Hi,
Yes, that is correct.  
Thankyou.

Hi Ksiko,
Please refer to:
PIM3000 - Beginning and end of a rental business: post-cessation receipts and expenses
Thank you

 

Hi. We own 2 rental properties and have decided to sell one. For the months that the property is going to be empty as the sale is going through can we claim allowable expenses against the annual income from both properties, as the other house is still being rented out so the 'business' is still functioning? Thanks

Hi,
We would advise you that due to the fact that your intention appears to  sell the property rather than rent it out again in the future then you will not be able to claim any expenses against that property after the date the tenant moved out as any expenses incurred would not be classesd as being wholly and aexclusively in respect of the property business:
PIM2510 - Beginning and end of a rental business: cessation
Thank you.
 

In relation to the point above, would any final repairs, travel and material expenditure to "make the property" saleable when the rental is complete and awaiting sale be allowable against CGT then? Hi Ksiko, If there had been an intention to restore the property to let it out again we could consider these as allowable repairs/expenses against IFP. As you appear to have withdrawn the property from letting these outgoings/repairs will count as capital expenditure against capital gains arising from the ultimate sale of the property as they will enhance the asset and increase its sale price. Thank you.

Hi,

You can claim the expenses that have enhanced the property against capital gains, not redecorating to freshen up. You cannot claim for the travel or for Council Tax, or insurance from the time the property let ended as you intended to sell.

Thank you.

I own a property which the tenant left in a disgraceful condition. Further to this the tenant did not pay any rent for the last 5 months of the tenancy. Since the tenant left we have had to spend a lot of money making the property habitable. The property is over 150 miles from our home so we could only visit and conduct the work at weekends. It has taken 4 months to get it to a decent standard to rent out. We did this with every intention of letting the property again. However, after reviewing prospective tenants and the costs involved so far we decided on 31 Mar 2024 to sell the property. Can I claim travel, subsistence and repair as well as Council Tax and utility bills up to 31 March? Furthermore, the tenant has now agreed to a monthly payment plan for part of the unpaid rent. Since the payments will run into 2024/2025 how do I declare this if the property is not let in the 2024/25 tax year?