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HMRC internal manual

Property Income Manual

From
HM Revenue & Customs
Updated
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Deductions: General rules: Main types of expenses: Owner occupied property

Expenditure on a house, flat or other property that the landlord occupies himself or herself isn’t normally allowed as a deduction in computing rental business profits because it does not satisfy the ‘wholly and exclusively’ rule.

Where a landlord genuinely runs the rental business from home they may claim the extra business costs that they incur - such as the cost of extra lighting and heating.

Where a specific part of their home is used exclusively for running the rental business for a significant amount of time, whether continuously or at particular times, then a proportion of all fixed expenses referable to that room may be deducted. Examples might be rent they pay to their own landlord for their home, repairs, property insurance etc - as well as lighting and heating. But see below where unusually high expenses are incurred.

Similar common-sense principles apply where a landlord lets a part of their home. That is, they need to split expenses between private use and rental use. Periods when their home is unoccupied will normally count as non-business use unless a definite part is set aside to let and they are actively seeking a tenant.

Sometimes there may be general overhead expenses of running a rental business. For example, in a large business employees may repair and decorate both the landlord’s private accommodation and commercial properties while office staff organise the work. An appropriate proportion of both the direct expenses (say the wages of painters) and the administrative staff needs to be allocated to the private work and excluded from the rental business profit computation.

It is impossible to lay down hard and fast rules because circumstances vary enormously. The aim is for the rental business deductions to reflect the commercial use of the property in a fair and reasonable way.

Interest on a loan on landlord’s own home that is partly letInterest on a loan for the purchase or improvement of a landlord’s only or main residence may also be split in the way outlined in the previous paragraphs. Relief for the business element may then be claimed in computing rental business profits. For more about interest see

PIM2100 onwards.

Exceptionally heavy expenses incurred on landlord’s own homeThe previous paragraphs explain the usual case where the running expenses for a home remain at about the same level each year. The expenses attributable to the rental business may need to take account of unusual factors in order to produce a fair result.

For example, it might not be fair to split heavy expenditure on repairing a roof in a particular year on a simple time or area basis between the let or office part of the home and the private part if the taxpayer has lived there for thirty years but only let part (or used part as the rental business office) for two years. Here the bulk of the expense on the roof arises out of private use of the house and a further restriction is needed to reflect the true business use of the home.

The adjustment can also work the other way. For example, where the whole property was let for twenty years and the taxpayer has only occupied part for two years. Here it may be fairer to attribute more than a proportionate share of the cost to the rental business.