Selling and the 'wholly and exclusively' test

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    Selling and the 'wholly and exclusively' test

    We have a flat that we bought to let and have done so for 10 + years. It has never been particularly profitable, so we decided to cut our losses and sell. The property was bought to let and has never been used for anything else but letting.

    The tenants moved out in October, at which point we put the flat on the market. It is still on the market and has been empty for the remainder of the 18/19 tax year.

    Our accountant is saying that the mortgage interest, ground rent, maintenance, energy costs and council tax since the tenants moved out are not allowable expenses as they haven't been wholly and exclusively incurred as part of a letting business.

    This, to me, seems bizarre, as we haven't used it for anything else. Is he correct?

    #2
    You have used those expenses to allow you to market it, surely. If you'd not, say, paid mortgage you might be being repossesed.

    MIGHT be allowable as selling costs for CGT. Get professional advice from accountant specialising in this area or buy a book on property tax.

    There are at least 10 taxes a landlord may pay. Worry about all, not just that brought in to pay for fighting the French.
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


      #3
      The flat remains as a BTL property until it is put to another use ( by moving in or selling. )

      So I would claim all of the allowable maintenance expenses incurred whilst it is vacant after the last tenant had moved out.

      https://www.gov.uk/hmrc-internal-man...anual/bim80565
      .

      Comment


        #4
        Well in normal circumstances these are allowable and offset against income, like wise if you make a loss you just carry this forward to set against property income that may arise in the future.

        mortgage interest, ground rent, maintenance, energy costs and council tax

        BUT you are selling it so realistically these costs are part of maintaining the asset, just like a car petrol, insurance, road tax. A factory for commercial premises would be similar.

        Just like if you bought the property or build it fro scratch to then sell on the market, you would still need to pay finance cost, council tax etc and then these would be offset

        So in my view these are claimable from when the last tenant moved out to disposal of the asset.

        this would be my view

        Comment


          #5
          Thank you all, very helpful.

          Comment


            #6
            Originally posted by stps View Post
            Our accountant is saying that the mortgage interest, ground rent, maintenance, energy costs and council tax since the tenants moved out are not allowable expenses as they haven't been wholly and exclusively incurred as part of a letting business.
            The letting business continues until all of the property in the business used for letting is removed from the business.
            That will happen on sale.

            What use does the accountant think the property is being put that takes it out of wholly and exclusive business use?
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

            Comment


              #7
              My friends accountant said the same when she sold her BTL - he used to work for HMRC.

              Personally I would put them through, chances are it will never be challenged.

              Comment


                #8
                Originally posted by pebblepebble View Post
                Personally I would put them through, chances are it will never be challenged.
                But if you do that is the HMRC not going to ask why you have not declared any rent?

                If two tax experts are saying that the expenses are not allowable that has to be taken seriously. I suggest the OP asks the question on a tax forum.

                Comment


                  #9
                  Originally posted by Lawcruncher View Post

                  But if you do that is the HMRC not going to ask why you have not declared any rent?

                  If two tax experts are saying that the expenses are not allowable that has to be taken seriously. I suggest the OP asks the question on a tax forum.
                  i dont think that the OP didnt declare income?
                  the expenses are allowable or should be

                  Comment


                    #10
                    I think the sensible thing to do is to ask the accountant why they think the test is failed.

                    Accountants shouldn't submit tax returns they think are incorrect, so there's a practical issue.
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #11
                      agreed , why does he think they aren't relevant expenses

                      Comment


                        #12
                        Originally posted by blinko View Post
                        agreed , why does he think they aren't relevant expenses
                        Could it be because the property is no longer let and on the market with vacant possession? Does that not indicate that the business of letting is no longer being carried on?

                        Comment


                          #13
                          Presumably most of those expenses would be deductable from the final sale price, so save CGT, wouldn't they?

                          Comment


                            #14
                            Originally posted by Lawcruncher View Post
                            Could it be because the property is no longer let and on the market with vacant possession? Does that not indicate that the business of letting is no longer being carried on?
                            Selling the property is part of the letting business.
                            Provided there's no other change of use (residence, holiday let) the property will stay in the business until sold.

                            My feeling is that there's probably a six year limit, but I've never seen that referenced.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment


                              #15
                              You may be right, but can you say you are in the letting business if you are not actually letting and have no intention of doing so?

                              Comment

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