Jennifer Adams considers the date on which a property business ceases to trade.
For UK tax purposes all sources of rental income, be they commercial or residential lets, furnished or unfurnished, are regarded as being derived from the same single property rental business, except for furnished holiday lets (FHL), which are kept separate. EU lettings and EU FHL are also separate activities.
How many properties?
This ‘consolidation’ approach means that the business does not cease just because one property has been sold or the rental ceases from one property. The business would also not cease if the landlord disposed of one property and at the same time bought another to let; it only ceases when the last let property in the portfolio has been disposed of.
However, should the business comprise just one property, the business would cease when the last tenant left and the landlord decides not to have another tenant, or he/she decides to live in the property as his/her main residence, or the property is otherwise taken out of the business (e.g. the landlord may decide to become a trader or dealer, re-developing the property in order to sell it at a profit).
Gaps in occupation
The coronavirus has caused concern amongst some landlords where there has been a gap in renting and then the rental recommences. This will not be a consideration where the landlord has a portfolio of properties, but it may be in point where there is only one property let.
In such a situation, the determination will depend on whether the same property was let before and after the period of dormancy, whether the property has been substantially altered during the period of dormancy, and how long an interval there was between lettings.
Example: Dormant period
Julianna rents out one unfurnished property. The tenant left and before another could be found the coronavirus restrictions meant that there was a dormant period of three months.
In this instance the dormancy period would have been short so cessation would not apply. However, if Julianna decided to re-let the property as a furnished property, HMRC may consider that the one business has ceased and another separate one commenced.
HMRC does not usually consider that a property business has ceased if there is evidence that the landlord has been trying unsuccessfully to get tenants during a period with no letting. It will also not be deemed to cease where the property is temporarily unavailable while work on repairs or alterations is carried out.
Time gaps between replacement property
Where there is one let property in the business and that property is sold and a replacement is bought for letting, it may be possible to regard the same rental business as continuing. HMRC apply a general rule of thumb by which they regard the old business as ceasing where there is an interval of more than three years and different properties are let.
Whether a property business has ceased is particularly relevant where there are losses. The 'consolidation' approach means that if a loss is made on one property, that loss is automatically relieved against profits made on other properties in the same property portfolio. If the business as a whole produces a loss (or there is only one property let), that loss can only be carried forward and relieved against profits of the same property business.
Therefore, if by the time the business ceases there are still unrelieved losses, those losses are lost.
Practical tip
For a rental business to cease the landlord must end all activities giving rise to receipts from land and property, but so long as another rental property(s) are purchased within three years of cessation then any losses incurred can generally be carried forward
