PIM2505 - Beginning and end of a rental business: commencement

ITTOIA/S57 and CTA09/S61


  • Usually a rental business begins when letting first commences.
  • Allowable revenue expenditure incurred before the rental business begins can be relieved under section 57 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA05) or section 61 of the Corporation Tax Act 2009 (CTA09) provisions for pre-trading expenditure.

Start of rental business

The date a rental business begins is a question of fact that depends on the nature of the rental business. Normally a rental business will begin when the customer first enters into a transaction that exploits their land or property in a way which gives rise to a receipt of some kind.

Where the rental business is letting property, the business can’t begin until the first property is let. You need to distinguish between activities that are preparatory to letting and those business activities that are part of letting. Once a rental business has started, all activities will be treated as carried out in the course of one business, subject to the points made in PIM1020 about businesses carried on in different capacities and the points made at PIM1030 about partnerships.

Thus, after the first property has been let, any later expenditure leading up to the letting of the second and later properties is part of the rental business and can be deducted, provided it meets the conditions outlined at PIM1900 onwards (it is incurred wholly and exclusively for the purpose of the business, it isn’t capital expenditure etc.)

The question of when a rental business starts normally only arises, therefore, when a customer receives income from property for the first time, or begins to exploit their land and property for a profit for the first time. Less commonly, it may arise if a customer resumes letting again having ceased an earlier rental business (see PIM2510).

The start date can be important because it can affect the amount of expenditure allowable in calculating rental business profits. Some expenditure incurred before the business begins may not be allowable but some may be allowable under special rules, if so, the deduction is given in computing the profits of the business in the first year.

Expenses incurred before rental business begins

A customer may incur expenses for the purposes of a rental business before that business starts. If so, they may be able to claim a deduction for them once the letting begins (ITTOIA05/S57 or CTA09/S61). Relief is only due under these special rules where the expenditure:

  • is incurred within a period of seven years before the date the rental business is started, and
  • is not otherwise allowable as a deduction for tax purposes, and
  • would have been allowed as a deduction if it had been incurred after the rental business started.

This means that, to be allowable, the expenditure must be incurred wholly and exclusively for the purposes of the rental business and must not be capital expenditure (see PIM1900 onwards). Thus, for example, rent paid to lease the first rental business property could be allowable under these special rules if it is due before the property is first let provided the property was acquired solely for the purposes of the rental business.

Relief is not due under the special rules for, for example, rent on the customer’s own private residence which is payable before they begin to let it (after, say, taking a job in another part of the country). Their expenditure on rent was not incurred wholly and exclusively for the purposes of their rental business, it was incurred to provide them with a home. Relief would be due under the ordinary rental business rules for rent for periods after the property was let commercially.

Qualifying pre-commencement expenditure is treated as incurred on the day on which the customer first carries on their rental business. This is deducted, together with the other allowable expenses of letting, from the total receipts of the business for that year.

For detailed guidance on pre-trading expenditure see BIM46350.

Capital allowances

Capital expenditure does not qualify for relief but there are also further special rules for capital allowances. Broadly they work in a similar way to those just outlined for revenue expenditure. For example, expenditure incurred on constructing a building before the rental business begins may qualify for Structures and Buildings Allowance once the building is in use for a qualifying purpose. For detailed guidance see the Capital Allowances manual.

Further guidance

For detailed guidance on the post-cessation receipts and expenditure legislation see BIM90000 onwards.