Whether a rental business has ceased for tax purposes is a question of fact. The answer depends normally on whether the activities after a given date are:
Where a rental business consists of letting property it will
normally cease when the taxpayer disposes of the last of the
properties they are renting out or, alternatively, they begin to
use all the properties for a non-business purpose. For example, if
the business only consisted of letting a single house, it would
cease when the tenant left and the taxpayer began to use the house
as a private residence or, alternatively, when they decided the
house wouldn’t be re-let. But the rental business
wouldn’t stop if the taxpayer bought another property for
letting at the same time.
For a rental business to cease the taxpayer must end all activities giving rise to receipts from land and property. If, for example the taxpayer built up a rental business of fifty rented properties and later sold forty-nine of them, the rental business would continue until the last one was sold or the last one ceased to be used for rental business purposes.
Rental business activities may stop and, after an interval, the taxpayer may begin again. Here it is necessary to decide whether the original business really continued after a period of dormancy, or whether it permanently ceased and the new activities amount to a new rental business. This too is a question of fact and much will depend on things such as:
For example, if the rental business consists of letting a single
property, it will not normally cease just because the tenant quits
and the property is empty while the taxpayer is looking for a new
A general rule of thumb for rental businesses is that the old business stops where there is an interval of more than three years and different properties are let in the taxpayer’s old and new activities. We offer this for guidance only. In practice, we will not normally suggest that the old business stopped where the gap is less than three years and the taxpayer was trying to continue. But the taxpayer would need to provide convincing evidence to show that the same business was carried on where the gap is three years or more.
Whether a rental business has ceased may not always matter because receipts or expenses arising after cessation may be taxed or relieved anyway under special rules (see below). But a cessation is particularly important where the old activity had unrelieved losses because, as PIM4210 explains, losses can only be carried forward and set against future profits of the same business. Therefore, where one rental business ceases and a new rental business starts at a later date, losses from the first business can’t be set against profits of the second.
There are special rules for receipts and expenditure after cessation - see below. The main point here is that post-cessation expenses can only be relieved for up to seven years after cessation, while there is no limit on carrying forward rental business deductions for a business that genuinely continues.
A receipt which arises from a rental business after it has
ceased is taxable under special rules provided, of course, 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, see below.
A taxpayer 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:
Another common example of a taxable post-cessation receipt is the recovery of bad debts. These are taxable if the taxpayer 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 bad or doubtful debt deduction was made.
In arriving at the tax due on post-cessation receipts the taxpayer 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 taxpayer 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.
Where the taxpayer 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.
A claim to relief must be made 5 days less than 22 months from the end of the tax year in which the payment is made (that is by 31 January).
When letting ceases for a period and later resumes, it is a
question of fact whether the original business has resumed or there
has been a cessation followed by a new business commencing. The
question will be particularly relevant when there are losses to
If the question is material, you should carefully consider all the evidence that the business continued. You can make some use of the principles applicable to trades - see BIM70500 onwards. Bear in mind, though, that there is a significant difference between a rental business and a trade in that a taxpayer, acting in the same capacity, can only have one rental business. Therefore a change in the scale of activities which might have been treated as a change of trade would not constitute a cessation and re-commencement of a rental business.
However, if the taxpayer lets other properties in the same capacity, the rental business will be treated as continuing anyway and these questions will not arise.
ICTA88/S21B applies to Schedule A businesses the post-cessation
receipts and expenditure rules for trades of ICTA88/S103 - S106,
S108, S109A and S110. You can find guidance on the post-cessation
receipts and expenditure legislation at BIM80500 onwards.
Reference is made above to post-cessation expenses when there are no post-cessation receipts to set them against. The sideways relief referred to is that provided by ICTA88/S109A. The types of expenditure are set out in subsection (2). Most of them are unlikely to arise in a rental business apart from (d) - the cost of collecting debts. The relief for bad debts is in subsection (4). See BIM80715 onwards for guidance on Section 109A.
The scope of the legislation on post-cessation receipts and
expenses is unchanged.
The legislation on post-cessation receipts is now in Chapter 10 of Part 3 of ITTOIA05 and the charging section is ITTOIA05/S349. In particular ITTOIA05/S351 applies the trading provisions:
to rental businesses. See PIM1113.
The scope of the legislation on post-cessation receipts and
expenses is unchanged. The legislation on post-cessation property
relief is now in ITA07/S125.
A claim for post-cessation property relief is possible if a taxpayer 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. These terms are defined in the following provisions which apply for the purposes of post-cessation property relief as they apply for the purposes of post-cessation trade relief:
If there is insufficient income to absorb the amount claimed by way of post-cessation property relief, the taxpayer may be able to treat the unused part as an allowable loss for CGT purposes. See TCGA92/S261D and 261E.
For detailed guidance on the post-cessation receipts and expenditure legislation see BIM80500.