As aborted house purchases outstrip completed sales by around two to one, according to figures from conveyancers In.Deed, property investors are racking up average costs of £5,500 for every deal that fails to go through.
Aborted transaction costs are the bane of landlords because not a single penny is reclaimable against a UK or overseas property business.
To claim an expense against a UK or overseas property business, the taxpayer has to prove the expenses were incurred ‘wholly and exclusively’ for the business or a measurable part of the expense can be apportioned as a business expense.
As income from a UK or overseas property business is considered as arising from an investment, reclaiming aborted transaction costs fails the wholly and exclusively rule.
Many landlords claim this is unfair because buy to sell property businesses can reclaim the costs as trading expenses.
This is because their income is from a trade rather than investment.
Property purchase expenses for buy to let investors are capital costs – which are reclaimed against capital gains tax when a property is sold.
Capital gains tax rules are specific about the costs a buy to let landlord can reclaim in buying, selling or improving a property.
Other purchase costs – like mileage, hotel stays, subsistence or air fares are not allowed as expenses for a UK or overseas property business.
For buy to sell investors, their purchase costs are carried forward on the balance sheet as work-in-progress (WIP) and deducted from the proceeds of a sale in the same tax year as the transaction is completed.
Click here for more information about the wholly and exclusively rule [Opens in new window]
Click here for more information about capital costs for buying, improving or selling a home [Opens in new window]
