Pre-letting costs

We act for a client who purchased a property for letting on a long-term basis. No holiday lets are involved. The letting could have commenced shortly after the purchase.

However our client decided that a higher rent could be obtained if a certain amount of decorating and maintenance was carried out first. We duly claimed tax relief on the maintenance costs against the rents arising from the subsequent letting.

HMRC have refused tax relief on the grounds that the expenses were incurred prior to the commencement of letting and should be added to the purchase price of the property. We maintain that the cost was not incurred in order to put the property into a lettable state but merely to enhance the rents achievable.

If our claim does not succeed surely pre-letting revenue expenditure – i.e. maintenance etc. – cannot increase the cost of the property...