HMRC internal manual

Property Income Manual

PIM3000 - Beginning and end of a rental business: post-cessation receipts and expenses

A receipt which arises from a rental business after it has ceased is taxable if the taxpayer has not already included that receipt in the computation of their rental business profits. The taxpayer may also be able to claim relief for post-cessation expenses for which they have had no relief.

Post-cessation receipts

Section 349 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA05)

Sections 280-286 of the Corporation Tax Act 2009 (CTA09)

Post-cessation receipts may occur where, for example, the rental business consisted of a single let property and, after they have sold the property and thus ceased their rental business, they receive an insurance pay out under a policy which covers a tenant who defaulted on the rents. The insurance pay out would have been taxable as a receipt while the rental business was continuing. Once the business has ceased the receipt cannot form part of their rental business. Instead it is taxed separately under ITTOIA05/S349 for those within the charge to income tax or CTA09/S280-286 for those within the charge to corporation tax.

Another common example of a taxable post-cessation receipt is the recovery of bad debts where the taxpayer previously claimed a deduction on the grounds that the debts were unlikely to be paid. Of course, where the debt was previously included as a receipt and no claim for a bad or doubtful debt deduction was made then no further tax charge would arise.

Post-cessation expenses

General principles

The taxpayer can deduct from post-cessation receipts expenses that would have been allowable had the business continued, for example, the cost of background heating for empty premises to keep down condensation and so maintain the value of the property for later sale. This is under section 351 ITTOIA05, which applies sections 254, 255 and 257 ITTOIA05 to property businesses.

Post-cessation property relief

Section 125 of the Income Tax Act 2007 (ITA07) and sections 196-197 of CTA09 allow deduction of a specific list of expenses following cessation of a property business. For example, if the customer recovers a bad debt after cessation, they can deduct the costs incurred in collecting that debt.

A claim for post-cessation property relief is possible if a customer ceases to carry on a UK property business and within 7 years makes a ‘qualifying payment’ or a ‘qualifying event’ occurs in relation to a debt of the business.

A claim to relief must be made on or before the first anniversary of the 31 January following the end of the tax year in which the payment is made.

Losses post-cessation

In arriving at the tax due on post-cessation receipts, the customer can deduct carried forward allowable losses from the property business that were unrelieved when the business ceased.   

Where taxpayers’ post-cessation expenses exceed post-cessation receipts, they may still be able to claim loss relief against general income (see PIM4220).

A taxpayer may also be able to claim post-cessation property relief against capital gains under section 126 ITA07.

Further guidance

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