PIM2010 - Deductions: general rules: applying the wholly & exclusively rule

Wholly and exclusively rule                        

Most of the trading expenses rules are applied to property income (see PIM1100 onwards). This includes the 'wholly and exclusively' rule which says that expenses cannot be deducted unless they are incurred wholly and exclusively for business purposes.

All the evidence has to be considered in determining whether an expense was laid out wholly and exclusively for business purposes. The evidence may include documents, agreements, notes of meetings and any other records. What a taxpayer says was their purpose in incurring the expense is part of the evidence but it is not necessarily decisive: the facts may point to another purpose. For example, suppose the customer lives in London but has a holiday cottage in Wales. The cost of a three week family holiday there is unlikely to meet the 'wholly and exclusively' test even if the customer says their purpose in going was to inspect the property prior to third-party letting later in the year.

Payments made by a partnership towards the personal or domestic expenses of a partner are disallowable because they fail the wholly and exclusively test.

Dual purpose expenditure

Strictly, if an expense is not wholly and exclusively for the purposes of the property business, it may not be deducted. 

Where an identifiable part of an expense is wholly and exclusively incurred for the purposes of the property business that part can be deducted. An example is the revenue running costs (including standing charges and hire-purchase interest) of a car or van used partly for business and partly for private purposes. For example, if 20% of the mileage in their car is business mileage, a customer can deduct 20% of the running costs of the car, including standing charges. For more about travelling expenses see PIM2220.

Another example is the cost of rates, lighting and heating of premises used partly as business and partly as private accommodation, see PIM2068 onwards.

Use of guidance material for trades

Guidance on the 'wholly and exclusively' rule in BIM37000 onwards, including tax cases, is applicable to a property business as it is to trades.

Deduction of interest

There are further rules that restrict the interest that may be deducted from the profits of letting residential property, see PIM2050 onwards.