Q. I have just bought a flat which is being let to my son. He has recently started his working life in a relatively low paid job so I’m helping out by charging him less than market rent. I expect my mortgage interest and other expenses to exceed the rents received. What options are available to me for tax relief on the losses?


A. In order to be deductible from rental income for tax purposes, property business expenses must pass the familiar test of being incurred “wholly and exclusively” for the purposes of the business. HM Revenue & Customs take the view that if property is let at less than market rent to a relative then the related expenses are incurred partly for benevolent or philanthropic reasons so fail the wholly and exclusively test. Strictly speaking, this means that no expenditure ought to be allowed as a deduction against the rental income but HMRC will allow a deduction up to the amount of rent received for the property. This means you will not be liable to tax on the income from your son but it also means you will not have a loss eligible for tax relief.

Click here to download our book 71 Ways to Pay Less Tax.


In association with Croner Taxwise