Allowable expenses for property businesses

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Allowable expenses for property businesses
  • General items
  • Repairs vs improvements
  • Repairs to fixtures
  • Capital items
  • Replacement of domestic items in residential properties
  • Business entertainment and gifts
  • Bad and doubtful debts
  • Unpaid remuneration
  • Employee benefit trusts (EBTs)
  • More...

Allowable expenses for property businesses

General items

Many of theprinciples applying to allowable expenses for property businesses are similar to those that apply for trading and therules for individuals in a property business are generally thesame as for companies with some exceptions which are highlighted in thedetailed sections below.

One notable difference in allowable property expenses between individuals and companies is thetreatment of interest expenses, details of therules for income tax purposes are included in theDeduction of interest against property income ― income tax rules guidance note and thecorporation tax rules are set out in theTaxation of loan relationships guidance note.

Note that of thefixed rate deductions for expenses available for self-employed people carrying on trades, professions and vocations, only thefixed rate deductions for business mileage applies to those carrying on a property business. See ‘Travelling costs’ below. This is because therules in ITTOIA 2005, ss 94H, 94I (deductions for theuse of home for business purposes and premises used both as a home and business premises) are not included in thelist of provisions that apply to profits of a property business by virtue of ITTOIA 2005, ss 272, 272ZA.

The rule that expenditure must be ‘wholly and exclusively’ for thebusiness applies. For more information, see theWholly and exclusively guidance note.

This guidance note gives details of certain specific types of expenditure which are of most relevance to UK property businesses.

Repairs vs improvements

A key distinction to consider is thedifference between repair work (a revenue item allowable as a cost against rental income) and capital improvements (a capital item not allowable against rental income, although it may be allowed as enhancement expenditure in computing a later capital gain).

The definition of a repair is not one that has a statutory footing ― it is thenormal English use of theword (supplemented by years of case law that has built up an understanding of

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