Offsetting guidance for UK private landlord clients
Post-cessation property expenses can be offset as follows:
The date of cessation of a property business is a question of fact. A property business may cease, for example, when the final UK property is sold, the owner moves into the property, or starts to use it for the purpose of a different business – for example, furnished holiday lets.
A break of less than three years in a property business will usually be considered temporary, therefore if a property business is restarted within three years of cessation of business activity, the same property business is assumed to continue.
The date of cessation has important implications for the purposes of relief of property losses and tax treatment of post-cessation receipts and expenses.
In cases where accruals basis is followed, most receipts and expenses relating to the last period of property business will have normally been accounted for. Yet some post-cessation expenses or receipts may still arise. One common example relates to receipts and payments in connection with recovery of old debts which had been previously been written off.
Where cash basis is followed by a private property landlord, post-cessation expenses and receipts are more likely to occur. In this case, both post-cessation income and expenses are taxable/tax deductible if they would have been allowable under the simplified cash basis (wholly and exclusively).
Post-cessation receipts are not reported on the UK property supplementary pages. Instead, the reporting depends on the tax year in which the income is taxed:
When to make an election
Making an election to carry back the post-cessation receipts may be beneficial if
Election can be made for receipts received in the six years after the date of cessation to be taxed in the tax year of cessation rather than the year of receipt, per ITTOIA 2005 section 257. This applies even if the profit or loss in the tax year of cessation was calculated under the simplified cash basis.
How to claim
The claim must be made by the first anniversary of 31 January following the end of the tax year in which the income was received (eg 31 January 2021 for income received in 2018/19). Election is valid for the year for which it is claimed only.
The tax return for the earlier year is not amended. Instead additional tax is calculated using the tax rates and allowances for the year of cessation and added to the tax due in the year of receipt. Due to the election, the income is not treated as tax assessed in the year of receipt, and it is not taken into account when calculating the payments on account due for the following tax year.
Points to remember
Post-cessation receipts cannot be set against the property allowance. This is the case whether the receipt is taxed in the year of receipt or carried back to the year of cessation (ITTOIA 2005, ss 349–356).
Order of relief of post-cessation property expenses
All post-cessation property expenses can be offset:
Categories of expenses referred to above are:
How to make a claim against total income
To make a claim against total income, enter the amount to be set-off in box 6 at the bottom of page Ai2 of the Additional Information supplementary pages and add a formal written claim for relief in the white space on page Ai4.
How to make a claim against capital gains
Anti-avoidance and other restrictions
Anti-avoidance targets the additional tax reliefs: against total income and capital gains, where transactions are entered into solely or mainly to avoid tax, rather than being the effect of genuine commercial circumstances.
The tax relief cap (greater of £50k of relief or 25% of income) restricts the relief of post-cessation expenses against total income.
The cap does not apply to the relief of post-cessation expenses against post-cessation property receipts and capital gains.