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Posted Tue, 15 Mar 2022 08:34:13 GMT by Pagw
Hello, I recently started letting out a flat that I had previously been living in. I paid the service charge and ground rent before the property was let out. Am I supposed to claim these as tax-deductible expenses for the period the flat has been let out on a pro rata basis (e.g. 50% if the flat was let for half of the financial year), or is it payments that were made during the letting term that are claimed? I can't find this confirmed anywhere.
Posted Tue, 15 Mar 2022 13:47:27 GMT by HMRC Admin 26
Hi,

Expenses for letting refer to those that were incurred wholly and exclusively for the rent. If these were paid for the property as a tenant and not a rental then these would not be allowable expenses.

Please see here:

Property Income Manual


Thank you.
Posted Tue, 15 Mar 2022 17:10:07 GMT by Pagw
Thanks for that. I do notice, though, that at the link for "applying the wholly & exclusively rule" (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2010) it says "Where a definite part or proportion of an expense is wholly and exclusively incurred for the purposes of the business, that part or proportion can be deducted" and it gives the example of vehicle running costs. Service charges and ground rent covering a period that includes the rental period seem similar to this, in that they are only incurred for the purpose of the property letting during the rental period (presuming the property would otherwise have been sold after the owner moved out and they would have been paid the remaining portion of the service charge and ground rent). I did also find at the following link "if for instance you had paid an annual insurance premium on 1st April and left the property with a view to letting it on the following 1st October, then you would claim one half of the insurance premium paid even though it was paid when you occupied the property" (https://uklandlordtax.co.uk/allowable-expenses-against-rental-income/) - is this link incorrect, since it seems to contradict what you wrote? Again, this seems similar to the service charge case. This seems like something where a clearly stated example relating to service charges and ground rent on the HMRC information pages would be valuable.
Posted Fri, 18 Mar 2022 13:26:47 GMT by HMRC Admin 20
Hi Pagw,

When determining whether all or part of a revenue expense is deductible, consideration should be given as to whether the expenditure was actually incurred for the purposes of the rental business. If all the expenditure, or a definite portion of it, was incurred for the purposes of the rental, then this portion is allowable. The purpose of the expenditure is key.
If at the time the expenditure was incurred there was no property business and no property business purpose then the expenditure would not be allowable, there is more guidance at:

PIM2010 - Deductions: general rules: applying the wholly & exclusively rule

and

PIM2505 - Beginning and end of a rental business: commencement

Thank you.

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