PIM1051 - Income chargeable: overview

Income within a property business

The concept of profits from a property business is broad. A taxpayer should:

  • bring in all rents and similar receipts from the exploitation of land or property in the UK, and

  • deduct the business expenses incurred in earning the income but not capital expenditure (PIM1900 onwards).

Some capital expenditure is relieved separately (PIM3010).

Income from properties owned outside the UK, described as overseas property income, is taxed as foreign income. But, generally, the computational rules are the same (PIM4700 onwards).

Most property business receipts from UK properties will normally consist of rents from the tenants or licensees of land and property. Note that:

  • Rental income from furnished, unfurnished, commercial and domestic premises, and from any bare land, is taxable as property income.

  • When property is let furnished, any separate sums obtained from the tenant for the use of the furniture etc are property business receipts (PIM1060).

  • Less common receipts from land (such as income from fishing rights) are taxable as property income, see below.

  • Taxable receipts include both money payments (for example, cash) and payments in kind.

Receipts other than rents can also form part of the property business income. Some of the main categories are:

  • rentcharges, ground rents and feu duties (PIM1056),

  • premiums and other similar lump sums received on the grant of certain leases (PIM1200 onwards),

  • reverse premiums (see ITTOIA05/S311 and BIM41050),

  • income arising from the grant of sporting rights, such as fishing and shooting permits (PIM1070),

  • income arising from allowing waste to be buried or stored on land (PIM1054),

  • income from letting others use land - for example, where a film crew pays to film inside a house or on land,

  • grants received from local authorities or others contributing towards revenue expenses, such as repairs to a property which are deductible in computing property business income; ‘revenue’ expenses are, broadly, running costs as opposed to capital costs (PIM1058),

  • rental income received through enterprise zone trust schemes,

  • income from caravans or houseboats where these are not moved around various locations (but see ESC/B29 and ITTOIA05/S20),

  • service charges received from tenants in respect of certain services ancillary to the occupation of property (PIM4300),

  • the excess of payments of Renewable Heat Incentives (RHI) or Feed in Tariffs (FIT) over the cost of providing energy to tenants ancillary to the occupation of property (PIM2076 and PIM4300),

  • refunds or rebates of property business expenses which have been allowed for tax,

  • deposits/bonds taken from tenants (see final paragraph below),

  • insurance recoveries under policies providing cover against non-payment of rent (PIM1058).

Income that is excluded from being in the property business is listed at PIM1110.

Single transactions are treated as arising in a business

Rents or other receipts arising from a single transaction for the exploitation of rights over UK land are treated as if they arose in a property business. Therefore the property income charge extends to one-off or casual lettings that may not have the degree of organisation normally associated with a business.

Rental receipts are not usually trade receipts

Various court cases have established the principle that income derived from rights of property in UK land is very unlikely to be trading income except in a hotel or guesthouse activity, where the whole income from guests is usually chargeable as trading income. The mere fact that the taxpayer spends a lot of time working in their letting business - perhaps even all their working time - does not convert rental income into trading income, PIM4300 has more details. (Salisbury House Estates Ltd v Fry [1930] 15TC266, Griffiths v Jackson [1982] 56TC583.)

Broadly, property business profits are calculated in the same way as the profits of a trade. But the established distinction between exploiting the rights of ownership of land to generate investment income and carrying on a trade remains.

Furnished lettings

For two special cases of furnished lettings see:

  • Rent-a-room (letting a room in your own home; see PIM4000 onwards),

  • Furnished holiday letting (see PIM4100 onwards).

Definition of receipts

Receipts of a property business include:

  • payments in respect of a licence to occupy or otherwise use land,

  • payments in respect of the exercise of any other right over land, and

  • rent charges and other annual payments reserved in respect of, or charged on or issuing out of, land, see PIM1056 for more details.