Incorrect claim for property expenses

After separating from her husband the taxpayer bought a house HM in which she lived until June 2014. She then let the property until selling it in June 2015. She claimed expenses incurred in preparing the house for rental against her lettings income in her 2013-14 and 2014-15 tax returns.

HMRC disallowed the claims and issued discovery assessments. It said the expenses were not wholly and exclusively for letting purposes because the taxpayer was living in the property at the time. The officer claimed the situation arose because she was careless so imposed penalties.

The taxpayer accepted she should not have claimed the expenses. But she said she had not been careless because after speaking to HMRC about them she had understood the only requirement to claim rental expenses was if she intended to let the property.

The First-tier Tribunal said the test was what ‘a reasonable hypothetical taxpayer’ would...