Jennifer Adams looks at the extent and possible limitations of claims by landlords for travel in their rental businesses.
If a landlord deals with the management of a rental property himself, the expense incurred by landlords for travel to and from the properties can be costly. This article considers when a claim for the cost incurred can be made.
Although not deemed by HMRC to be a business taxable as a trade, taxable profits from the rental of properties are generally calculated using the same rules (ITTOIA 2005, s 272). This means that a journey must be undertaken ’wholly and exclusively’ for the purposes of the property business in order to be deductible as a business expense. Only where a definite part or proportion satisfies this test can a claim be made.
Duality of purpose
It is a question of fact as to whether the landlord carries on the rental business from his home. If that is the case, the cost of all trips from home to the rental property for a business reason (e.g. to check on the investment property/liaise with tenants, etc.) will be allowable. Problems can arise in instances where the trip has a duality of purpose, being partly for private and partly for business reasons.
For example, a landlord uses his home as the base for his property business. He drives to a rental property for an inspection visit and on the way stops at a DIY store to collect materials to replace a broken shower head. On the way back, he visits a supermarket for some personal shopping. The first stage of the trip (from base to the DIY store, then on to the rental property itself) is fully allowable, but the journey back (from property to base) cannot be claimed, as it was not undertaken ’wholly and exclusively’ for business purposes.
However, a deduction can be claimed for a journey where any personal benefit is incidental (e.g. a trip made to the rental property, but the landlord stops on the way to pick up a newspaper).
Care needs to be taken if the property business is run from a separate office away from home. In this instance travel from home to the office is disallowed, but travel from office to the rental property can be claimed. Travel from home directly to the property would not be permitted if the base is not at home.
Cars used in the business - what to claim?
- Purchase of a car - If the landlord uses his own car to drive to the rental property, the purchase cost of the car is not allowable; nor is a depreciation charge possible. However, a proportion of the cost can generally be claimed for each accounting period under the capital allowances legislation.
- Running expenses
There are two methods of calculation for running expenses incurred:
- the actual basis, such that the actual expenses incurred (fuel, repairs, insurance, etc.) are totalled and apportioned between business and private percentage using detailed records. The percentage will be the same amount claimed on the purchase of the car. Provided that the landlord proposes a percentage to add back/disallow which reasonably reflects the private element, HMRC will usually accept; or
- the standard method of calculation is the use of a fixed rate per mile (as per HMRC’s authorised mileage rates). Currently, the first 10,000 business miles are claimed at 45p, then 25p thereafter. Once this method of claim is used, it must continue to be so for as long as the car is owned and used in the business.
Other vehicle related expenditure, such as tolls, parking fees, etc. (but not parking fines) are allowable in full if incurred whilst on the rental business.
If the business trip requires an overnight stay, hotel costs and meals are generally allowable.
Letting agents managed
Some landlords engage a letting agent to fully manage the property. This can include arranging for repairs and attending inspection visits, etc. Where an agent carries out all (or virtually all) of the duties relating to the letting activity, it is likely that the rental business will be deemed by HMRC as being conducted through the agent.
In such circumstances, HMRC will argue that all ‘necessary’ business mileage is being undertaken by the agent rather than the landlord and disallow any mileage expenses claimed by the landlord. The business ‘base' will be deemed to be the agent's office and as such travelling expenses from the landlords’ home to the property will be disallowed. Travel costs incurred by the landlord from the agent’s office to the property will be permitted.
Foreign travel
When the landlord lets out a foreign property and the purpose of the trip is to both visit the property and have a holiday, only those items of expenditure incurred solely for the purpose of the rental business can be deducted.
If the sole purpose of the trip is to attend to rental business, then the expense will usually be allowable in full, notwithstanding any incidental private benefit. HMRC have been known to check airline tickets to see whether the landlord was accompanied by their spouse/partner and/or family on such an overseas trip.
All foreign property rentals are treated as one business separate from the letting of UK properties. Hence a claim can be made for the cost of travel to view a property in France against the rental income from a villa already owned in Spain.
Use of a car allowance
As well as running a property business, some landlords work full-time being taxed under PAYE and some also receive a car allowance for business mileage. If this car is also used in the property business, then it might be an easier calculation to claim the 45p fixed rate rather than try to calculate the correct amount for business purposes.
Practical Tip:
To ascertain which calculation method to use, create a spreadsheet with the date of each journey incurred during a set period, work out the total mileage incurred on that journey, the start and finish point and the purpose of the journey (e.g. trip to carry out maintenance on property). Work out the percentage of rental business use. Compare this percentage figure with the amount claimable under the 45p etc. rule, and use whichever method is more beneficial.
