Allowable property expenses

Produced by Tolley
Allowable property expenses

The following Personal Tax guidance note Produced 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
  • Expenses under the accruals basis
  • Expenses under the simplified cash basis
  • Capital expenditure ― accruals basis
  • The enduring benefit test
  • Repairs versus improvements
  • Capital expenditure ― simplified cash basis
  • Wholly and exclusively
  • More...

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:

  1. 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

  2. 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.

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:

  1. there must be actual expenditure incurred by the person

  2. that expenditure must be incurred for the purposes of the property business, and

  3. the expenditure must be wholly and exclusively so incurred

ITTOIA 2005, ss 272, 272ZA as read with ITTOIA 2005, s 34

However, expenditure that does not meet these conditions may still be deductible from property income if there is a specific statutory provision allowing relief.

As a result of an avoidance scheme that used the rules on tax deductions in order to generate artificial losses, a targeted anti-avoidance rule was introduced to prevent any deduction that is a result of an arrangement where the

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