beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Property Income Manual

Deductions: general rules: applying the wholly & exclusively rule

Wholly and exclusively rule                        

Most of the trading expenses rules are applied to property income (see PIM1100 onwards). This includes the ‘wholly and exclusively’ rule which says that expenses cannot be deducted unless they are incurred wholly and exclusively for business purposes.

All the evidence has to be considered in determining whether an expense was laid out wholly and exclusively for business purposes. The evidence may include documents, agreements, notes of meetings and any other records. What the customer says was their purpose in incurring the expense is part of the evidence but it isn’t necessarily decisive: the facts may point to another purpose. For example, suppose the customer lives in London but has a holiday cottage in Wales. The cost of going down there for a three week family holiday is unlikely to meet the ‘wholly and exclusively’ test even if the customer says their purpose in going was to inspect the property prior to third-party letting later in the year.

Payments made by a partnership towards the personal or domestic expenses of a partner are disallowable because they fail the wholly and exclusively test.

Dual purpose expenditure

Strictly, if an expense is not wholly and exclusively for the purposes of the property business, it may not be deducted. In practice, though, some dual purpose expenses include an obvious part which is for the purposes of the business. We usually allow the deduction of a proportion of expenses like that. 

When expenses may be apportioned

Where a definite part or proportion of an expense is wholly and exclusively incurred for the purposes of the business, that part or proportion can be deducted. An example is the revenue running costs (including standing charges and hire-purchase interest) of a car or van used partly for business and partly for private purposes. For example, if 20% of the mileage in their car is business mileage, a customer can deduct 20% of the costs of the car, including standing charges. For more about travelling see PIM2220.

Another example is the cost of rates, lighting and heating of premises used partly as business and partly as private accommodation, see PIM2068 onwards.

Use of guidance material for trades

The instructions about the ‘wholly and exclusively’ rule in BIM37000 onwards are applicable to a property business as they are to trades. Since the ‘wholly and exclusively’ rule applies in relation to a property business as it does in relation to a trade, the various Tax Cases mentioned in the Business Income Manual may be used in interpreting the meaning of ‘wholly and exclusively’ for a property business.

There are further rules that restrict the interest that may be deducted from property income, these are outlined in PIM2050 onwards.