Allowable property expenses

By Tolley
Personal_tax_img

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Allowable property expenses
  • Calculation of profits and losses of a property business
  • General principles for allowable property expenses
  • Capital expenditure ― accruals basis
  • Capital expenditure ― simplified cash basis
  • Wholly and exclusively
  • Common expenses
  • VAT
  • Properties not let at a commercial rent

This document discusses the general principles for allowable expenses and the tax treatment of capital expenditure and common expenses incurred by property businesses. It also covers VAT aspects and properties not let on commercial rent.

 

Calculation of profits and losses of a property business

From 2017/18 onwards, there are two possible bases of assessment that can be used to calculate property business profits and losses:

  • the simplified cash basis, which is the default basis for calculating profits and losses, unless certain conditions are met, see the Simplified cash basis for unincorporated property businesses guidance note
  • the accruals basis, see the Property income ― accruals basis guidance note

Prior to 2017/18, profits and losses were calculated on the accruals basis, unless the gross rental profits did not exceed £15,000, in which case a non-statutory cash basis could be used. If used, the cash basis needed to be used consistently, and the overall result needed to be reasonable and not differ substantially from the amount produced using the accruals basis.

PIM1101

This guidance note discusses the general principles for allowable expenses and the tax treatment of common expenses incurred by property businesses.

General principles for allowable property expenses

Before considering the rules that apply to either the simplified cash basis or the accruals basis, it is worthwhile setting out the rules that are common to both bases of assessment. For the transitional rules that apply to expenses where there is a change of basis, see the Simplified cash basis for unincorporated property businesses guidance note.

The general principles that all expenditure must satisfy are:

  • there must be actual expenditure incurred by the person
  • that expenditure must be incurred for the purposes of the property business, and
  • the expenditure must be wholly and exclusively so incurred

ITTOIA 2005, ss 272, 272ZA

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