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 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.
The 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.
