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HMRC internal manual

Property Income Manual

HM Revenue & Customs
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Deductions: specific items: properties not let at a commercial rent


Expenses incurred by a taxpayer on a property occupied rent free by, for example, ar elative are likely to be incurred for personal or philanthropic purposes - to provide that person with a home. The same applies where the property is let at less than a commercial rate or isn’t let on commercial terms.

Unless the landlord charges a full market rent for a property (and imposes normal market lease conditions) it is unlikely that the expenses of the property are incurred wholly and exclusively for business purposes (PIM2010). So, strictly, they can’t be deducted in arriving at rental business profits. However, if the taxpayer lets a property below the market rate to, say, a relative (as opposed to providing it rent-free), they can deduct the expenses of that property up to the rent they get from it. This means that the uncommercially let property produces neither a profit nor a loss, but the excess expenses cannot be carried forward to be used in a later year.

A relative or friend may ‘house sit’ between normal lettings on commercial terms. Provided the property is genuinely available for commercial letting - and the landlord is actively seeking tenants - they can deduct the expenditure incurred on that property in the normal way. The test is whether the expenditure on the property is incurred for the purposes of the rental business or whether it is really incurred for personal reasons. It isn’t possible to lay down hard and fast rules but, as a guide, ordinary house sitting by a relative for, say, a month in a period of three years or more will not normally lead to a loss of relief. On the other hand, relief will be lost if, say, the relative is really just taking a month’s holiday in a country cottage.

Similarly, deductions are not due for expenses incurred on a property made available to relatives, friends, business associates or personal staff (such as a gardener who only works on private property or a chauffeur). For example, the expenses of a holiday home provided free or at a low rate in this way can’t be set against the profits of commercial lettings. Deductions can be claimed up to the amount of rent the taxpayer gets from the property.

In some cases a property (such as a holiday home) may be let commercially some of the time and provided free to relatives at other times. Here the expenses will need to be apportioned on a reasonable basis between the commercial and uncommercial use. An excess of the business element of the expenses over the rent can be deducted in the overall rental business computation. But any excess relating to uncommercial use cannot be deducted.

Heavy expenses which essentially arise out of the non-business use of the property can’t be deducted simply because they happen to fall within the period of a short commercial let. The guidance at PIM2050 for exceptional expenditure on owner occupied property is relevant here.

Sometimes the landlord may have general overhead expenses of running a rental business. For example, in a large business employees may repair and decorate commercial properties and also private properties, or properties let at a nominal rent or otherwise on uncommercial terms. Office staff may organise the work for all the properties. Here an appropriate proportion of both the direct expenses (say the wages of painters) and the administrative staff need to be allocated to the uncommercial properties so that the restrictions outlined above can be made.

Relief for capital expenditure on uncommercially let property

Any relief for capital expenditure on uncommercial lettings may also be restricted.

In particular any plant and machinery capital expenditure on uncommercially let properties must go into separate pools. The allowances are reduced on a ‘just and reasonable basis’ to reflect the non-business use. This rule applies both to assets that are used entirely in uncommercially let property and to assets that are partly used for that purpose and partly for normal commercial lettings; for example, vans and motor mowers. There is general background about capital allowances at PIM3000 onwards.

The 10% ‘wear and tear’ allowance may be claimed on an uncommercially let furnished property. The relief will be limited to 10% of the actual net rent received for the property (if any). Any allowance is added to the other expenditure on the property and it can, therefore, only be deducted up to the amount of the rent received (if any). ‘Wear and tear’ allowance is dealt with at PIM3200.


In order to compute the profits of a rental business, all the rents and expenses of that business are pooled together. However, by applying trading income principles we ensure that an uncommercially let property is not subsidised for tax purposes by others.

To be allowable, expenses must be wholly and exclusively for the purposes of the rental business - ICTA88/S74 (1) (a) and ITTOIA05/S272. In particular relief for the maintenance of the taxpayer’s family or establishment is excluded.

  • If a property is occupied rent free, it is completely outside the property income regime - there is no exploitation of it as a source of rents or other receipts - ICTA88/S15 (1) 1 (2) and ITTOIA05/S266 (1).
  • If a property is let at less than the full commercial rent, any expenditure relating to that property will normally have been incurred partly for a benevolent or philanthropic purpose and will consequently fail the ‘wholly and exclusively’ test in ICTA88/S74 (1)(a) and ITTOIA05/S272. Although, in strictness, no expenditure on such properties is admissible as an expense of the rental business, expenses can be deducted up to the amount of rent derived from that property.