Beginning and end of a rental business: post-cessation receipts and expenses
ITTOIA05/S349 and CTA09/S280-286
A receipt which arises from a rental business after it has ceased is taxable under special rules provided, of course, the customer has not already included that receipt in the computation of their rental business profits. The customer may also be able to claim relief for post-cessation expenses for which they have had no relief, see below.
A customer may get post cessation receipts where, for example, their 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 defaults on the rents. The unpaid rent (or the insurance recovery) would have been taxable as business receipts while their rental business was continuing. Once the business has ceased the receipt can’t form part of their rental business. Instead it is taxed separately under ITTOIA05/S349 for IT cases or CTA09/S280-286 for CT cases.
Another common example of a taxable post-cessation receipt is the recovery of bad debts. These are taxable if the customer previously claimed a deduction on the grounds that the debts were unlikely to be paid. They are obviously not taxable again if the debt was previously included as a receipt and no claim for a bad or doubtful debt deduction was made.
ITA07/S125 and CTA09/S196-197
In arriving at the tax due on post-cessation receipts the customer can deduct any allowable business losses that were left unrelieved when the business ceased and also other expenses that would have been allowable had the business continued. Thus, for example, if the customer recovers a bad debt after cessation, they can deduct the costs incurred in collecting that debt. Another example might be the cost of background heating for empty premises to keep down condensation and so maintain the value of the property for later sale.
Post-cessation expenses but no post-cessation receipts
Where the customer doesn’t have any post-cessation receipts they may still be able to claim relief sideways for post-cessation bad debts and certain specific defined post-cessation expenses. The sideways deduction is against other taxable income and capital gains of the year in which the debts proved to be bad or the payments were made.
Time limits for post-cessation expenses
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.
For detailed guidance on the post-cessation receipts and expenditure legislation see BIM90000 onwards.