Breaks in letting periods and tax

August 11th 2023

You have a long-standing tenant who has moved out of your buy-to-let property and you haven’t yet found another. You are still incurring costs on the property but as there is no rent coming in, can you continue to claim a tax deduction for them? Naomi Swan from our Tax Department advises.

It’s unlikely that when a tenant moves out of your property another will immediately move in. There are inventories, cleaning, repairs, and a host of other jobs to do before that can happen. These cost money and, what’s more, while the property is empty you will still have to pay interest on any borrowing relating to the property plus costs normally met by the tenant, e.g. council tax.

Costs of letting a property are tax deductible from rent, subject to HMRC rules. But if you have no rent coming in are costs tax deductible? and if so from what? This is where the status of the property is important. In HMRC’s eyes a property can be:

• Let commercially.
• Let uncommercially, for example at special rates or no rent to family or friends.
• Occupied personally by you.
• The rental business has ended or it’s temporarily vacant.

The tax treatment of expenses depends on which situation applies.

Uncommercial letting
Expenses incurred in respect of a period of uncommercial letting, for example at less than the full rent you could expect to get, can only be deducted up to the amount of the rent received. This means either there’s no profit or a loss where expenses exceed the rent. Any excess expenses cannot usually be claimed against later or earlier rents.

Personal occupation
As you would expect, none of the expenses incurred for a period of personal occupation are deductible. An expense, e.g. buildings insurance, which covers a period during which the property has more than one occupancy status, such as commercially let, vacant and let uncommercially, must be apportioned and attributed to each period on a time basis.

Rental business has ceased
Except where the advice below applies, you can claim a tax deduction for expenses incurred after the letting business has permanently ceased. Deciding if it has or hasn’t ceased isn’t always straightforward. For example, after a tenant has left the property might be vacant for a long period for various reasons. This doesn’t mean that the rental business has ceased.

Temporarily vacant
Expenses incurred for a period when a property is temporarily vacant can be deducted for the tax year in which they were incurred. In theory a property could be vacant for a whole tax year and the expenses incurred for that period would be tax deductible. This would result in a loss for the year which can be carried forward and deducted from rental business profits of later years.

Remember, the date an expense is paid does not necessarily determine which period it relates to. For example, a plumber’s bill for work during a tenancy might be invoiced or paid when the property is vacant, but it is tax deductible because it relates to a period of commercial letting.

Generally, you are entitled to tax relief for costs incurred for a period when the property is not occupied by a tenant. However, this excludes periods where you personally occupy the property. In other circumstances, such as where you let the property at an uncommercial rent, the expenses you can claim for are capped at the amount of rent you receive.

Our team are more than happy to assist clients with buy to let tax queries, please do contact us.