PIM1103 - Use of trading income rules: similarities and differences to trading income rules

The trading income rules which apply to a property business are that profits should be determined on the same normal commercial principles, such as:

  • include revenue expenses and exclude capital expenses (see BIM35000 onwards),

  • expenses must be 'wholly and exclusively' for the purpose of the property business,

  • determine profits on an accruals basis (unless the cash basis is being used),

  • use the same statutory rules in determining what expenses to allow in computing the profits (see BIM42100 onwards). For example, apply the rule that no expense is allowable unless it is wholly and exclusively for the purposes of the business.

Differences from trading income rules

In certain ways the computation of property income is different.

  • Trade basis periods are not used (but see PIM1040 for partnerships).

  • Trade loss rules do not apply to property income, except for furnished holiday lettings (see PIM4100 onwards).

  • Some statutory rules apply only to rental income, for example the taxation of premiums received (see PIM1200 onwards).

Applying the trading income rules: IT for 2005-06 onwards and CT for 2009-10 onwards

The trading income rules in Part 2 of ITTOIA05 that apply for the purposes of computing the profits of a property business are set out in ITTOIA05/S272(2) (see PIM1104).

The trading income rules in Part 4 CTA09 that apply for the purposes of computing the profits of a property business are set out in CTA09/S210 (see PIM1106).