Impending tax changes are leading many landlords to consider selling up their property businesses as they fear they will no longer make a profit.

Many landlords fear new finance interest relief rules starting from April 2016 will drastically affect the viability of their businesses.

Ceasing a property business is fraught with tax issues that need careful thought and the sales need timing.

Here’s a checklist of some of the tax points to bear in mind if you are planning to sell up buy to let or houses in multiple occupation (HMOs).

Selling an empty letting property

Tax rules say that if an owner no longer intends to rent out a home, then any costs to put the property back into the state it was in when the last tenant moved in are still allowed as property business expenses.

If the tenant moved out and the property needed redecoration and some repairs, then these can be claimed in the normal way as if the property was still a letting property.

Once the home is reinstated, then running costs such as council tax and insurance are no longer business costs.

Selling a property with a sitting tenant

All the costs related to the property continue to be allowed as normal letting expenses

When does a property business cease?

Generally, two factors apply –

  • The letting property no longer has a tenant

And

  • The owner does not intend to let the property any longer

So, a former letting property standing empty without the intention to re-let is cessation of a property business. That does not apply to homes between tenants – rental voids – as the landlord has the intention to let.

If the property investor moves in, the date the decision is made removes the intention to let.

From a tax point of view, it’s a good idea for property investors to document dates and intentions so they can claim the appropriate business expenses.

What happens to rolling rental losses?

Tax law has no set timescale that defines when a property business ends and a new one starts.

The rule-of-thumb applied by HM Revenue & Customs (HMRC) is that if a letting business has ceased for three years, if the investor buys another letting property they are starting a new business.

In this case, the rolling losses disappear and cannot be brought forward to the new business.

Capital gains tax

Disposing of a property when a letting business ceases triggers capital gains tax.

In some cases, if the timescale between the last letting and disposal is lengthy, HMRC may object to offsetting the costs of sale.

Think about the timing of sales so CGT bills are spread across different tax years to make best use of reliefs and allowances.

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