I have rented out my only property for the last ten years while I lived overseas. I have now returned to the UK and intend to live in the property for a maximum of 12 months. The house is in a poor state of repair. My plan is to get approximately £70,000 of work done to bring the property up to standard for renting again and live in it as I do this work. Once the work is complete and the property is ready to rent again, I will buy a house to live in and re-let the rental house.   
 
My question is, can I deduct the costs against future rent once it’s let again? Are there any implications of me living in the property as the costs are being incurred? Are there any other implications of this plan that I should be aware of? I’m a higher-rate taxpayer and have a residential mortgage (I had permission to let whilst I was abroad).   

Arthur Weller replies:  

If you are going to live in the property while refurbishing, HMRC would probably not allow this expense because they would claim that you did it for your own personal benefit, and not for the purposes of the rental business. However, if you did not live in the property while refurbishing, this expense should be allowable. Since the period between the old tenancy ending and the new tenancy starting is a maximum of 12 months, this gap is less than the three-year figure quoted in HMRC’s Property Income Manual at PIM2510, and so would qualify for 'the rental business not ceasing'.