Policy paper

Income Tax: mileage rates for unincorporated property businesses

Published 22 November 2017

Who is likely to be affected

Individuals and partnerships made up only of individuals carrying on a property business who travel by cars, goods vehicles or motor cycles for business purposes.

General description of the measure

The measure allows landlords the choice to use fixed rates per business mile to calculate their allowable deductions for motoring expenses, instead of deducting actual running costs and claiming capital allowances. It will not be available to landlords who are companies or in mixed partnerships (a partnership with both individual and non-individual members).

This makes the tax computations of these businesses more consistent with trading businesses who already have this choice, and the mileage rates will be the same as for trading businesses and employees using the same vehicles.

Policy objective

The measure will simplify tax computations for unincorporated property businesses who choose to use mileage rates.

Background to the measure

The measure was announced at Autumn Budget 2017.

The option for landlords to calculate deductions using fixed mileage rates was requested by stakeholders during the consultation on simplified cash basis for unincorporated property businesses, which ran from August to November 2016. Until 2013 landlords were able to deduct fixed mileage rates under an Extra Statutory Concession.

Detailed proposal

Operative date

The measure will have effect on and after 6 April 2017.

It will include transitional arrangements to allow landlords who previously claimed mileage rates under the Extra Statutory Concession to start using mileage rates again, from 6 April 2017, without having to wait to acquire a new vehicle.

Current law

Taxable profits of a property business are calculated according to the rules in Part 3 of Income Tax (Trades and Other Income Act) 2005 (ITTOIA 2005). In many respects those rules apply the same rules as provided in Part 2 for calculating trading profits, but this does not include section 94D, which allows expenditure of vehicles to be deducted on a fixed rate in calculating the profits of a trade.

Currently, unincorporated property businesses may only deduct actual motoring expenses incurred for the purpose of the business and claim capital allowances for the cost of the vehicle.

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 to add the use of mileage rates as an allowable method of calculating the allowable deduction in respect of motoring expenses incurred for the purposes of a property business.

This will be achieved by adding sections 94C to 94G of Income Tax (Trading and Other Income) Act 2005 to the list of trading provisions applied in calculating the profit of a property businesses by section 272(2) of ITTOIA 2005.

In most cases mileage rates will not be available in respect of vehicles for which capital allowances have already been claimed, or for which expenditure in acquiring the vehicle has been deducted in a business using the cash basis.

However, there will be transitional arrangements for property businesses who claimed capital allowances in relation to a vehicle in the tax years 2013 to 2014 to 2016 to 2017, and who wish to start using mileage rates for use of the same vehicle from the 2017 to 2018 tax year. The transitional arrangements will prevent the deduction of any further capital allowances in this circumstance.

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
negligible	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals as it only affects unincorporated businesses. There is no impact on family formation, stability or breakdown.

Equalities impacts

This measure is an optional and simpler method of calculating a category of expenses for landlords and as such, no impact on the equality of protected groups has been identified.

Impact on business including civil society organisations

This measure will make record keeping and claiming for motoring expenses simpler, and has been requested by landlords and their advisers following the introduction of statutory mileage rates for trading businesses, and the withdrawal of the Extra Statutory Concession in 2013. The population expected to benefit from this measure cannot be accurately identified from the existing tax returns, however, it is expected this measure will contribute to a reduction in administrative burdens for unincorporated property business. There is no impact on civil society organisations.

Operational impact (£m) HM Revenue and Customs (HMRC) or other

There will be negligible IT or operational costs for HMRC implementing this measure. Updates will be made to our guidance.

Other impacts

Wider environment impact: because the mileage rate provides the same relief for all cars, it may provide some incentive to use smaller, more fuel efficient cars.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Elinor Crockford on Telephone: 03000 565875 or email: elinor.crockford@hmrc.gsi.gov.uk.