During the Covid-19 pandemic, landlords may have periods when their properties have been empty. Landlords letting furnished holiday lettings were particularly badly affected due the restrictions imposed during the lockdown period, as letting of holiday homes was prohibited between 23 March 2020 and 3 July 2020. Home moves were also put on hold at the start of the lockdown.
How long can a property remain empty before the property rental business is regarded as ceasing?
Temporary pause or permanent cessation
In the life of a property rental business, rental business activities may stop and, after an interval, start again. A prime example of this during the Covid-19 pandemic when some lets may be have empty for a period, before being let again as restrictions eased.
The question as to whether the business has been paused or has ceased depends on the facts. Even if lettings start again, it is not a given that this is a continuation of the previous business – it may instead by the start of a new property rental business.
To determine whether the existing property rental business is continuing or has ceased, it is necessary to look at the facts.
In reaching a decision, consideration should be given to factors such as:
- whether the same property is let before and after the break;
- where the same property is re-let after a break, whether it been altered significantly during the empty period;
- the length of the period between lets; and
- the type of activities that constitute the property rental business before and after the pause.
For example, where the property rental business comprises a single property, the property rental business will not normally be regarded as ceasing where there is a break between lets while a new tenant is found.
HMRC’s rule of thumb
HMRC offer a rule of thumb as a guide to whether a property business has ceased. The old business is treated as stopping where there is an interval of more than three years and different properties are let in the old and new period of letting activity. A business may be regarded as continuing where the gap is more than three years, although evidence would need to be provided to show this is a case. This could be important where losses are involved, as losses from the old business cannot be set against profits of the old.
Where a rental business comprises the letting of several properties, it will normally be regarded as having ceased when the last property has been sold or is used for another purpose, for example as a private residence. If there is only one property in the property rental business, the business would cease when the property was no longer available for letting. However, it would continue if the taxpayer bought a different property to let and lived in the original let property as his or her home.
Partner note: HMRC’s Property Income Manual at PIM2510.
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