Are you a buy-to-let landlord who’s decided to take a mortgage payment holiday? We explain the impact on this on tax relief for interest payments in today’s blog.

Mortgage payment holidays and interest relief for landlords

In March, the Government announced that homeowners struggling to pay their mortgages due to Coronavirus would be able to take a three-month mortgage payment holiday. They confirmed that this option would also be available to buy-to-let landlords, who may suffer cashflow difficulties if, as a result of the virus, their tenants were unable to meet their rent in full when it is due. In May, the Government announced that those struggling to pay their mortgages because of the impact of Coronavirus would be able to extent their mortgage payment holiday by up to three months.

Where a landlord opts to take a mortgage payment holiday, what impact does this have on tax relief for interest payments?

Interest continues to accrue

The first point to note is that interest continues to accrue during the period of the mortgage holiday, although the landlord will not be required to make any payments during this time. This is important and will impact on the timing of the associated interest relief, which will depend on whether accounts are prepared on a cash basis or on the accruals basis.

At the end of the holiday, the missed payments and interest may be recovered by extending the term of the mortgage or by making higher payments once payments restart.

Relief as a basic rate tax reduction

From 2020/21 onwards, tax relief for finance costs (such as mortgage interest) on residential properties is given only as a tax reduction at the basic rate. This means that 20% of the allowable finance costs are deducted from the tax that is due.

Impact of a mortgage holiday – Cash basis

Most landlords whose rental receipts are £150,000 a year or less will prepare the accounts for their property rental business under the cash basis. As expenditure under the cash basis is recognised when paid, if the landlord does not make a payment, there will be no relief for that expense until the payment is made.

Where the landlord takes a mortgage, no interest will be paid during the period of that holiday. As a result, a landlord may pay less in interest in 2020/21 than in 2019/20. The interest rate reduction is calculated by reference to the interest paid in the year.

Example

Kevin has a buy-to-let property on which he has buy-to-let mortgage, the interest on is £500 per month. As a result of the Covid-19 pandemic, his tenant struggles to pay his rent on time. Kevin takes a three-month mortgage payment holiday. To mortgage term is extended as a result.

In 2020/21, Kevin only makes nine mortgage payments instead of the usual 12, paying interest of £4,500 rather than £6,000. The tax reduction for 2020/21 is £900 (£4,500 @ 20%) rather than £1,200 (£6,000 @ 20%).

Impact of mortgage payment holiday – Accruals basis

Under the accruals basis relief is given for the period in which the expense arises rather than when payment is made. As interest continues to accrue throughout a mortgage holiday, the landlord will be able to claim the full tax reduction on the interest accruing in the 2020/21 tax year, even if the interest was not paid in full in the year because the landlord took advantage of a mortgage payment holiday. If, in the above example, Kevin prepared his accounts for 2020/21 on the accruals basis, he would be able to claim a tax reduction of £1,200 rather than £900.

Partner note: ITTOIA 2005, ss. 272A

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

If you have a holiday let but are worried you won’t meet the occupancy test this year, all is not lost. There are two routes by which it may be possible to reach the required occupancy threshold – an averaging election or a period of grace election.

Furnished holiday lettings – What can you do if you fail to meet the occupancy tests due to the Covid-19 pandemic?

Lets that qualify as furnished holiday lettings (FHL) enjoy special tax rules compared to other types of let, allowing landlords to benefit from certain capital gains tax reliefs for traders and to claim plant and machinery capital allowances for items such as furniture, fixtures and equipment. Profits from an FHL business also count as earnings for pension purposes.

To qualify as an FHL the property must be in the UK or (for the time being at least) in the EEA. It must also be let furnished and meet various occupancy conditions.

Occupancy conditions

To qualify as an FHL, all three occupancy conditions must be met. Where the let is continuing, the tests are applied on a tax-year basis; for a new let, the must be met for the first 12 months of letting.

Test 1 – Pattern of occupancy condition

This test is met if the total of all lettings that exceed 31 days is not more than 155 days in the year.

Test 2 – The availability condition

The property must be available for letting as furnished holiday accommodation for at least 210 days in the tax year (excluding any days in which the landlord stays in the property).

Test 3 – The letting condition

The property must be let commercially as furnished holiday accommodation to the public for at least 105 days in the year. Lets of more than 31 days are not counted unless the let exceeds 31 days as a result of unforeseen circumstances. Lets to family or friends on a non-commercial basis are also ignored.

Impact of Coronavirus

The hospitality and leisure sectors have been hard hit by the Covid-19 pandemic and the lockdown means that many landlords with holiday lets will fail to meet the letting condition in 2020/21. However, all is not lost and there are two routes by which it may be possible to reach the required occupancy threshold – an averaging election or a period of grace election.

Averaging election

An averaging election can be used where a landlord has more than one holiday let and one or more of the properties does not meet the letting condition. Instead of applying this test on a property by property basis, it can be applied by reference to the average rate of occupancy across all properties let as FHLs. Thus, the test is treated as met if on average the holiday lets are let for 105 days in the tax year.

While, at the time of writing, it was unclear when all the restrictions may be lifted, an averaging election may help landlords with mixed portfolios including some winter holidays lets as well as those that are popular in the summer.

Period of grace election

A period of grace election can be used where the landlord genuinely intended to meet the letting condition but was unable to. The Coronavirus pandemic is a prime example of where this may be the case.

To make a period of grace election, the pattern of occupation and availability conditions must be met. Also, the letting condition must have been met in the year before the first year in which the landlord wishes to make a period of grace election. If the letting condition is not met again in the following year, a second period of grace election can be made. However, if the test is not met in year 4 after two period of grace elections, the property will no longer qualify as a furnished holiday letting.

The election provides a potential lifeline to landlords of holiday lets unable to meet the letting condition in 2020/21 as a result of the Covid-19 pandemic. It can be made either on the self-assessment tax return or separately (either with or without an averaging election). A period of grace election for 2020/21 must be made by 31 January 2023.

Partner note: Self-assessment Helpsheet HS253.

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

For landlords, the impact that unpaid or late paid rent has on the calculation of taxable profits depends on whether you prepare accounts on the cash basis or under the accruals basis. We go through some case studies in today’s blog

Late or unpaid rent – Impact on the calculation of a landlord’s taxable profits

As with other sectors, landlords may be adversely affected by the Covid-19 pandemic. Tenants suffering cashflow difficulties may be unable to pay their rent in full or on time. The impact that unpaid or late paid rent has on the calculation of taxable profits depends on whether the landlord prepares accounts on the cash basis or under the accruals basis.

Cash basis

The cash basis is the default basis of preparation for most landlords whose cash receipts for the tax year are £150,000 or less. Under the cash basis income is recognised when the money is received not when it is earned, and expenses are accounted for when the money is paid not when the expenses is incurred. Receipts are income of the period in which the money is received, and expenses are outgoings of the period in which they are paid. Consequently, there are no debtors or creditors.

This provides automatic relief where rent is not paid or is paid late, protecting the landlord from having to pay tax on money he or she has yet to receive.

Example 1

Harry is a landlord and lets a flat for £800 a month, payable on 25th of each month. Due to the Covid-19 pandemic, his tenant does not pay the rent that was due on 25 March 2020. The tenant eventually pays £200 of the overdue rent in June 2020 and the remaining £600 in September 2020.

Harry prepares the accounts for his rental property business on the cash basis, accounting for rental income only when the rent has been received. The rent due for March 2020 (falling in the 2019/20 tax year) is not received until June and September 2020 – which fall in the 2020/21 tax year. As a result, the rent for March is taken into account in computing Harry’s taxable profits for 2020/21 rather than 2019/20.

Accruals basis

Rental profit must be determined under the accruals basis in accordance with UK GAAP where the landlord is not eligible for the cash basis (for example, because rental receipts for the tax year are more than £150,000) or because the landlord elects for the cash basis not to apply. Under the accruals basis, rental income is taken into account in the period to which it relates, rather than when the rent is paid. Likewise, expenses are deducted when the expense is incurred not when the bill is paid, if different. There is no automatic relief if rent is not paid on time as under the cash basis.

Example 2

Louisa has a number of rental properties and as her rental receipts exceed £150,000 a year, she prepares the accounts of her rental business under the accruals basis. One of her tenants fails to pay the rent of £2,000 for March 2020 which was due on 1 March 2020. The tenant eventually pays the late rent in September 2020.

As accounts are prepared under the accruals basis, the rent due for March 2020 is taken into account in working out the taxable profit for 2019/20, regardless of the fact that it was paid in 2020/21 rather than in 2019/20.

There is, however, relief available where the rent remains unpaid and is not recovered, as opposed to being paid late – a deduction is permitted for a debt which is genuinely bad or doubtful.

Partner note: ITTOIA 2005, ss. 271A to 271D.

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

Not putting a property in joint names prior to selling is an easily avoided mistake – read our blog to see if this would benefit you.

Potential benefits of putting a property into joint names prior to sale

Where a property qualifies in full for private residence relief, it is perhaps academic, from a tax perspective at least, whether a couple own it jointly or it is the one name only. In either case, the relief shelters any gain that arises and there is no tax to pay.

However, where a gain is not fully sheltered by private residence relief, as may be the case for an investment property or a second home, there can be very different tax consequences depending on how it is owned.

Take advantage of the no gain/no loss rules for spouses and civil partners

There are some breaks in the tax system for married couples and civil partners, and one of them is the ability to transfer assets between each other at a value that gives rise to neither a gain nor a loss. This can be very useful from a tax planning perspective to secure the optimal capital gains tax position on the sale of property where full private residence relief is not available. This enables a couple to utilise available annual exempt amounts and lower tax bands.

Capital gains tax on residential property gains is charged at 18% where total income and gains do not exceed the basic rate limit (set at £37,500 for 2019/20) and 28% thereafter.

Case study

Ron and Rita have been married a number of years and in addition to their main residence, they have a holiday cottage, which is owned solely by Ron. As their lives are busy, they no longer use the cottage much and decide to sell it. They expect to realise a gain of £100,000.

Rita does not work and has no income of her own. Ron is a higher rate taxpayer. Neither has used their annual exempt amount for 2019/20 (set at £12,000).

If they leave the property in Ron’s sole name, they will realise a chargeable gain of £88,000 after deducting his annual exempt amount of £12,000. As a higher rate taxpayer, this will give rise to a capital gains tax bill of £24,640 (£88,000 @ 28%).

However, as Rita has her basic rate band and annual exempt amount available, making use of the no gain/no loss rule to put the property in joint names prior to sale can save the couple a lot of tax. Each will realise a gain of £50,000.

As far as Ron is concerned, £12,000 of his gain will be sheltered by his annual exempt amount, leaving a chargeable gain of £38,000 on which tax of £10,640 will be payable.

Rita will also have a gain of £50,000, of which the first £12,000 is covered by her annual exempt amount, leaving a chargeable gain of £38,000. As her basic rate band is available in full, the first £37,500 is taxed at 18% (£6,750), with the remaining £500 being taxed at 28% (£140). Thus, Rita’s tax liability is £6,890, and the couple’s total tax bill is £17,530.

By taking advantage of the no gain/no loss rule to put the property into joint names prior to sale, the couple will be able to make use of Rita’s annual exempt amount and basic rate band, reducing the capital gains tax payable on the sale from £24,640 to £17,530 – a saving of £7,110.

Partner note: TCGA 1992, s. 58.

To find out more please follow us on Facebook, Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

Renting out a property at a rate below the commercial level might sound like a great idea – but it might cost you dearly if you try to seek tax relief for your expenses!

Properties not let at a commercial rent

There may be a number of reasons why a property is occupied rent-free or let out at rent that is less than the commercial rate. This may often occur where the property is occupied by a family member in order to provide that person with a cheap home. For example, a parent may purchase a house in the town where their student son attends university and let it to the student, and maybe even his housemates, at a low rent to help them out. While the parents’ motives are doubtless philanthropic, their generosity may cost them dearly when it comes to obtaining relief for the associated expenses.

Wholly and exclusively rule

Expenses can only be deducted in computing taxable rental profits if they are incurred wholly and exclusively for the purposes of the property rental business. Unfortunately, HMRC take the view that unless the property is let at full market rent and the lease imposes normal conditions, it is unlikely that the expenses are incurred wholly and exclusively for business purposes. So, where the property is occupied rent-free, there is no tax-relief for expenses.

If the property is let at a rent that is below the market rent, a deduction is permitted, but this is capped at the level of the rent received from the let. This means that where a property is let at below market rent, it is not possible for a rental loss to arise, or for expenses in excess of the rent to be offset against the rent received from other properties in the same property rental business.
Periods between lets

Where there are brief periods where the property is occupied rent-free or let out cheaply, it may be possible to obtain full relief for expenses. For example, if the landlord is actively seeking a tenant and a relative house sits while it is empty, relief will not be restricted as long as the property remains genuinely available for letting. In their guidance HMRC state, that ‘ordinary house sitting by a relative for, say, a month in a period of three years or more will not normally lead to loss of relief’. However, if a relative takes a month’s holiday in a country cottage, relief for expenses incurred in that period will be lost.

Commercial and uncommercial lets

Where a property is let commercially some of the time and uncommercially at other times, expenses should be apportioned on a just and reasonable basis between the commercial and non-commercial lets. Any excess of expenses over rents in the period when commercially let can be deducted in the computing the profit for the rental business as a whole. However, an excess of expenses over rent when the property is let uncommercially are not eligible for relief.
Timing must also be considered – expenses relating to uncommercial lets cannot be deducted simply because they are incurred when the property is let commercially.

Partner note: HMRC Property Income Manual PIM 2130.

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

This blog explains what qualifies for relief for finance costs, the limit on eligible borrowings, and how capital repayments work with a quick example.

Allowable finance costs

Although the way in which landlords obtain relief for finance costs on residential properties is changing, there is no change to the type finance costs that are eligible for relief.

What qualifies for relief

The basic rule is that relief is available for expenses that are incurred wholly or exclusively for the purposes of the property rental business, and this rule applies equally to finance costs. Relief is available for eligible finance costs where they meet this test.

The definition of finance costs includes mortgage interest and interest on loans to buy furnishing and suchlike. Relief is also available for the incidental costs of obtaining finance, as long as the interest on the loan is allowable. Incidental costs of loan finance include items such as arrangement fees, and fees incurred when taking out or repaying loans or mortgages.

Limit on eligible borrowings

A landlord can obtain relief for the costs of borrowings on a loan or mortgage up to the value of the property when it was first let. Buy-to-let mortgages are often more expensive than residential mortgages with interest charged at a higher rate. The loan does not have to be secured on the let property. Where a landlord wishes to buy a rental property and has sufficient equity in their own home, it may make commercial sense to release capital from the home by borrowing against it and using the money to purchase the rental property. Interest on the loan is eligible for relief, despite the fact the loan is not secured on the rental property.

No relief for capital repayments

Capital repayments, such as the capital element of a repayment mortgage or loan repayments, are not eligible for relief. Where the borrowings are in the form of a repayment mortgage, it will be necessary to split the payment between the interest and capital when working out the relief. The lender should provide this information on the statement.

Example

Mervyn wishes to invest in a buy to let property. As he only has a small mortgage on his home, he remortgages to release £150,000 of equity.
Following the remortgage, he has a mortgage of £200,000 on his own home. Using the released equity, he buys a property to let for £150,000. He spends some time renovating the property in his spare time before letting it out. When the property is first let, it has a value of £160,000.

During the 2019/20 tax year, Mervyn pays mortgage interest of 10,000and makes capital repayments of £10,800. The property is let throughout.
Mervyn can claim relief for 80% of the interest costs – this is attributable to the borrowings of £160,000 (80% of the loan of £200,000), being the value of the let property when first let. The interest eligible for relief is therefore £8,000 (80% of £10,000). For 2019/20, 25% (£2,000) is relieved by deduction with the balance giving rise to a deduction from the tax due of £1,200 (75% x £8,000 x 20%).

No relief is available for the capital repayments.

Partner note: ITTOIA 2005, ss. 272A, 272B, 274A, 274B

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

In essence, it’s all about the ‘wholly and exclusively’ test – could it be time to invest in some branded sweatshirts?

Dual purpose expenditure – can landlords claim a deduction?

Landlords are able to claim tax relief for expenses that are incurred wholly and exclusively for the purposes of the property rental business. However, some expenses have both a private and a business element. Where this is the case, is any relief available?

Business element separately identifiable

If it is possible to separate the business and the private expenditure, a deduction can be claimed for the business element. This may be the case, for example, in relation to a car which is used for both private journeys and for the purposes of the property rental business, to visit tenants or to check on the properties. Likewise, a landlord may use his or her mobile phone for private calls and also for business calls. From the call log, it will be possible to identify the business calls and to apportion the bill between business and private calls.

Business element cannot be separately identified

If the expenditure is dual purpose in nature and it is not possible to identify the business element, no deduction is allowed. The expenditure does not meet the ‘wholly and exclusively’ test, and as such is not deductible in computing the profits of the property rental business. An example of expenditure that may fall into this category is clothing, even if only worn for working in the property rental business. The clothing fails the wholly and exclusively test as it also provides the landlord with warmth and decency (a private purpose). However, it should be noted that a deduction is allowed for clothing that bears a conspicuous advert for the business, such as a sweatshirt featuring the name of the property rental business and the logo.

Example

Dave is a landlord and has a number of properties that he rents out to students. He uses the same car for the purposes of the property rental business as for private journeys.

Dave undertakes the decorating and much of the maintenance on the properties himself. He has purchased overalls specifically for this purpose, which he wears only when undertaking work on the let properties. In the tax year, he spends £80 on overalls.

In the tax year in question, Dave drove 6,800 miles of which 4,200 were for the purposes of his property rental business.

A deduction is allowed for the business mileage. Dave uses the simplified mileage system, claiming a deduction of £1,890 (4,200 miles @ 45p per mile).

However, although he only wears the overalls when working on his let properties, the private benefit cannot be distinguished from the business use. Consequently, the ‘wholly and exclusively’ test is not met, and the £80 which Dave spent on overalls cannot be deducted in computing the taxable profit for his property rental business.

Partner note: ITTOIA 2005, s, 34.

 

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

 

In this blog we set out the three conditions property must meet to be considered a furnished holiday let and to access all the advantages they bring, and top tip – letting to family or friends at a reduced rate doesn’t count! 

Many Airbnb lets are used as holiday accommodation. From a tax perspective, furnished holiday lettings enjoy some tax advantages over other lets. So, is it possible for an Airbnb let to benefit from these advantages and what conditions must be met?

Qualifying conditions

Simply letting a property as furnished holiday accommodation is not in itself sufficient to qualify for the furnished holiday letting (FHL) treatment. As with other lets, Airbnb lets must meet the conditions set out in the legislation.

The first point to note is that the FHL treatment is only available to properties which are in the UK or the EEA and which are let furnished.

Occupancy conditions

There are three occupancy conditions which must be met for a property to be treated as FHL.

Condition 1 – the pattern of occupancy condition

The pattern of occupancy condition is met if the total of all lettings in the tax year exceeding 31 days is 155 days or less. The nature of holiday letting is multiple short lets rather than longer lets and this condition seeks to recognise this.

Condition 2 – the availability condition

To meet this condition the accommodation must be available for letting for at least 210 days in the tax year. Days where the owner stays in the property do not count as days when the property is available for letting.

Condition 3 – the letting condition

The letting condition is met if the property is let commercially as furnished accommodation to the public for at least 105 days in the tax year. Only commercial lets count towards this total – any days when the property is let to family or friends at a reduced rate or where they are allowed to use the property for free are ignored.

Longer term lets of more than 31 days are also ignored (unless a let which was supposed to be less than 31 days is extended due to unforeseen circumstances, such as a delayed flight or the holidaymaker becoming ill).

Averaging election

If a person has more than one property let as holiday accommodation (whether via Airbnb or similar or otherwise), an averaging election can be made where the letting condition of 105 days is not met. As long as the average let across all properties is at least 105 days in the tax year, the condition is treated as met. Thus, if a person has three holiday properties which were let commercially for periods of 31 days or less for at least 315 (3 x 105) days in the year, the average let would pass the test.

Period of grace election

A second election, a period of grace election, can be made if the landlord genuinely intended to meet the letting condition but was unable to do so, as long as the condition was met in the previous tax year. This will allow the property to continue to be treated as a FHL. If the condition is not met the following year, a second period of grace election can be made. However, if the condition is not met in the fourth year after two consecutive period of grace elections, the property will no longer qualify as a FHL.

Advantages

Qualifying as a FHL offers a number of advantages. It opens the door to various capital gains tax reliefs for traders, including entrepreneurs’ relief. The landlord is also eligible to claim plant and machinery capital allowances if the cash basis is not used. Profits also count as earnings for pension purposes.

Partner note: ITTOIA 2005, Pt. 3, CH. 6 ss. 322 – 328B).

 

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

Property Tax

Landlords – you must file your self-assessment tax return by 31 January 2020 to avoid a late filing penalty. Here’s what you need to know:

The self-assessment deadline is looming. Self-assessment tax returns for the year to 5 April 2019 must be filed online by 31 January 2020 if a late filing penalty is to be avoided.

Landlords will need to complete the property income pages. Particular care should be taken where the landlord has a loan or a mortgage as the way in which relief is given for financing costs is changing and the position for 2018/19 is different to that for 2017/18.

The way in which relief for finance costs is given is moving from relief by deducting the finance costs when computing profits to giving relief in the form of a basic rate tax reduction. The 2018/19 tax year is a transitional year.

What costs are eligible for relief?

Interest payable on loans to buy land or property which is used in the rental business is eligible for relief, as is interest on loans to fund improvements or repairs. It should be noted that it is not necessary for the loan to be secured on the let property – the rule is that interest is allowable on borrowings up to the value of the property when first let. Thus, if a landlord borrowed against their main home to fund a buy-to-let investment property, the interest on that loan would be allowable on the loan up to the value when the property was first let. If the mortgage on the residential property is more, the allowable interest is proportionately reduced.

Relief is also available for the costs of getting a loan.

It should be noted that it is only the interest and other finance costs which qualifies for relief – no relief is available for any capital repayments which may be made.

The position for 2018/19

For 2018/19, relief for 50% of eligible finance costs is given as a deduction in computing the profits of the property rental business and relief for the remaining 50% is given as a basic rate tax reduction. This makes completing the property pages of the tax return slightly tricky as the information must go in two places.

The first box which needs to be completed is Box 26. This is where allowable loan interest and other financial costs need to be entered. Amounts entered in this box are deducted in computing rental profits. Therefore, as only 50% of the allowable finance costs for 2018/19 are relieved in this way, only 50% of the costs for that year should be entered in this box.

The remaining 50% is entered in Box 44, helpfully titled ‘Residential finance costs not included in box 26’. The amount entered in this box is used to calculate a reduction in the landlord’s tax bill. The reduction is equal to 20% (the basic rate of income tax) of the amount entered in Box 44.

If you have any unrelieved finance costs from earlier years, these should be entered in Box 45. Any balance of residential finance costs which is unrelieved may be carried forward to future years for relief by the same property business.

Partner note: Self-assessment UK Property notes (SA105); see www.gov.uk/government/publications/self-assessment-uk-property-sa105.

 

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474.

It can pay off to keep track of your business mileage you incur for your rental properties – here’s why.

Using your car in your property rental business

Landlords will often use their car for the purposes of their property rental business. Where they do so, they are able to claim a deduction for the costs that they incur.

Using mileage rates

Where a landlord uses their car for business purposes, the easiest way to work out the amount that can be deducted is to make use of the simplified expenses system and use the relevant mileage rates to claim a deduction based on the business mileage undertaken.

For cars (and also vans) the rate is set at 45p per mile for the first 10,000 business miles in the tax year and at 25p per mile for any subsequent business mileage.

Example

Karen is an unincorporated landlord and has three properties that she lets out. During the tax year, she undertakes 712 business miles in her own car in respect of her property business.

She claims a deduction of 45p per mile, a total deduction for the year of £320.40.

Deduction based on actual costs

The use of simplified expenses, while generally easier from an administration perspective, is not compulsory. The landlord can instead claim a deduction based on the actual costs. However, in practice this will be time consuming. Further, where the car is used for both business and private travel, a deduction is only permitted for the business element. Separating actual costs between business and private travel can be very time consuming and will only be worthwhile where it gives rise to a significantly higher deduction than that obtained by using the mileage rates.

Capital allowances

Capital allowances cannot be claimed where mileage allowances are claimed. Where a deduction is based on actual costs, capital allowances can be claimed in respect of the car. However, the claim must be adjusted to reflect any private use. So, for example, if a car is used for the purposes of the property business 20% of the time and for private use 80% of the claim, any capital allowance claim must be restricted to 20%.

Other travel

The costs of travel on public transport or by taxi can be deducted in computing the profits of the property rental business to the extent that it constitutes business travel for the purposes of that business.

Partner note: ITTOIA 2005, s. 94D

To find out more please follow us on Facebook , Twitter or LinkedIn. Feel free to contact us on 0333 006 4847 or request a call back by texting to 075 6464 7474