The question about whether you can offset costs that you have made before you purchased a property is an interesting one. Unfortunately it is also a bit of a grey area as far as taxation goes.
The rules for pre-trading expenditure are quite complex, but in theory you can claim expenses incurred in the seven years before commencement of the rental ‘business’.
The expenses are treated as incurred on the first day the rental ‘business’ starts.
Having said that, HMRC will want to examine these property expenses closely with a view to establishing whether they were incurred ‘wholly and exclusively’ for the purposes of the ‘trade’ i.e. your property business.
Again in theory HMRC can disallow any expense which has a duality of purpose, but in practice they will usually allow a split to be made.
They will also examine the expenses to see whether they are capital or
revenue in nature.
Don’t forget it is only revenue costs that you can offset against your rental income.
Below is a list of some common types of pre-trading expenditure you are likely to incur before you buy your property:
– travelling costs (see section Travelling Costs);
– the cost of purchasing dedicated trade/magazines for helping you to find your property;
– the cost of telephone calls when phoning estate agents/property vendors, etc.
The important point to note is that each occurrence of a pre-trading expenditure must be incurred wholly and exclusively for the property.
Did you know?
Our property management software allows you to distinguish between ‘revenue’ costs and ‘capital’ costs? By selecting costs as ‘capital’ costs they will not be offset against the rental income, which is in line with HMRC guidelines.
