The treatment of travel expenses is similar to that as incurred by a trade or profession, such that to be allowed two key conditions need to be met:
1. The expense must be related to the property in that it satisfies the ‘wholly and exclusively’ test; and
2. It must not be incurred as a capital improvement such that the value of the property is increased.
‘Wholly and exclusively’
Confirmation that profits of a property are calculated using the same rules as for the computation of trading income is to be found in the tax legislation at s 272 of the Income Tax (Trading and Other Income Act) 2005 (ITTOIA 2005) and hence the ‘wholly and exclusively’ rule applies such that there must not be duality of purpose of the expense incurred.
• Office based at home
It is a question of fact as to whether the landlord carries on the rental business from his home. If so, the cost of all trips from home (e.g. to check on the investment property/liaise with tenants etc) are fully allowable, provided that the visit is not also combined with a personal reason. However, a deduction would still be possible for a journey where any personal benefit is incidental (ie ‘de minimis’); for example, the trip is made to the rental property but the landlord stops on the way to pick up a newspaper.
Furthermore, when making a claim for travelling expenses between the home base and a let property the real reason for the trip may need to be considered carefully. For example, a landlord lets his main residence in Woking whilst working away from home in Brighton. He has travelled to Woking with his family to visit relatives at Christmas. Whilst in the area he may decide to drop by the rented property for a visit - this will be deemed a ‘duality of purpose’ visit, not fulfilling the 'wholly and exclusively' rules and hence the cost of travel will be disallowed for tax purposes. Similarly, if the owner lives in London and has both a holiday home and a letting property based a few miles away from each other in Dorset, the cost of travel would only be allowed if the trip was made straight from the London base to the letting property without stopping at the holiday home first. However, it would be fair to claim mileage from the holiday home to the let property.
• Office outside of home
If the property business is managed from an office outside of the home then HMRC deems the business not to be carried on at home, even if the property owner sometimes works from home. In this situation the cost of journeys between home and either the property let or that office base will not be allowable. However, the cost of travel from the office to and from the properties, and also between properties, will be allowable provided that the trip is incurred ‘wholly and exclusively’ for rental business purposes.
• Use of a letting agent
Some landlords engage a letting agent to manage the collection of rents, organise services etc. Where such an agent carries out all (or virtually all) the duties relating to the letting activity, it is likely that the rental business is being conducted through the agent. In such circumstances, the business 'base' is deemed to be the agent's office and as such travelling expenses from the landlords’ home to the property are not allowable but will be from the agents office to the property.
Relevant tax cases
Under the tax legislation (ITTOIA 2005, s 272) these cases are now relevant to a rental business:
• Newsom v Robertson  - a barrister frequently worked from home but his chambers were separate. As such he was deemed not to be carrying on his profession from home and travel between home and chambers was not wholly and exclusively incurred for the purposes of his profession.
• Horton v Young  - it was found that the claimant did carry on his trade from home and as such travel from home to the various sites at which he worked was undertaken for the purposes of the trade and claimable.
How much to claim?
• Capital expenditure
If the landlord uses his own car for travel, the full capital purchase cost of the car is not allowable; rather a proportion is, as capital allowances, claimed in the proportion of business use. The ‘wholly and exclusively’ rule also applies to that amount claimed and as with car running expenses only the business proportion is allowed. Allowances on cars costing in excess of £12,000 are further restricted. For detailed guidance see www.hmrc.gov.uk/manuals/pimmanual/PIM2210.htm and PIM3000 onwards, and HMRC’s Capital Allowances manual.
The detailed rules and an example of this calculation are to be found in Property Tax Insider at Issue 5 January 2011 page 7 ‘Using Your Car for your property business’.
• Running expenses
There are two methods of calculation for car expenses incurred - the same as for other business expenses. (Detail of which is also given in the article ‘Using Your Car for your property business’).
1. A fixed rate for each mile travelled on business using HMRC’s fixed mileage rates. Currently the first 10,000 business miles in relation to the rental business are claimed at 45p and 25p thereafter. This method of calculation is only available where certain conditions are met, including that the turnover of the business does not exceed the VAT registration threshold (currently £73,000).
2. On an actual basis, such that the actual expenses (fuel, repairs, insurance etc) are totalled and apportioned between business and private percentage using detailed records. For example, if a landlord agrees with HMRC that 70% of mileage incurred relates to expenses for the property business a 70% deduction is claimed (the same percentage is used for the capital allowance claim). Provided that the landlord proposes a percentage to add back/disallow which reasonably reflects the private element, HMRC will usually accept.
Misc Travel Costs
If the trip to visit the property requires an overnight stay then hotel costs and meals in restaurants can be claimed; if public transport is used then the claim is the cost of the ticket.
• If a foreign property is rented out then similar to any other business travel costs, car parking, hotel expenses, petrol, toll charges, flight costs etc can be claimed providing that you can prove no ‘duality of purpose’ (e.g that you did not visit the property whilst also on holiday)
• Incidentally, all foreign property rentals are treated as one business. Hence a claim can be made for the cost of travel to Dubai to look for a possible new rental property against the rental income from a villa already owned in Spain.
Expenses when not available for letting
Expenses incurred during any period whilst the property is ‘not available for letting’, are not deductible for tax purposes. This not only means that travel costs cannot be claimed but it also results in restrictions being made on other expenses that would otherwise be claimed including the mortgage interest.
Keep detailed records for approximately six months and then compare with the use of fixed mileage rates. Once you have claimed using one method of calculation you cannot change to the other method at a later date unless the car that is being used is changed. There is no prescribed form but a spreadsheet detailing the date of the journey, the total mileage (starting and ending mileage), the start and finish point (e.g home to rental property) and the purpose of the journey (e.g trip to carry out maintenance on property) should be sufficient proof.
This article was first printed in Property Tax Insider in February 2012.