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HMRC internal manual

Business Income Manual

Specific receipts: rents: rents are not trade receipts

Subject to a few exceptions, rents received in respect of premises should, in law, be excluded, together with the related outgoings (see BIM41010), in computing the profits of a trade or profession (see the priority rules at BIM14020) even where such rents are in respect of:

  • lettings by a property-owning concern in the ordinary course of its business, or
  • property owned as trading stock.

There is a mandatory exception to this rule in the case of ‘tied’ premises (BIM46810 and BIM51430) and traders may choose to include both receipts and expenses in calculating trade profits in the following cases:

  • letting caravans or pitches for caravans on a site on which a trade connected with the operation of the site is carried on - see PIM4300,
  • excess accommodation temporarily let or sublet at premises occupied for the business - see BIM41015,
  • electric-line wayleaves which relate to land on which a trade is carried on - see BIM67600.

Rents excluded from trade profits are dealt with under the property income rules. This remains the case even if the properties are occupied under licences rather than leases (see Webb v Conelee Properties Ltd [1982] 56TC149). The essential difference between a licence and a lease is that a lease creates the legal relationship of landlord and tenant, whereas a licence is merely a permission to enter on the land of another person for an agreed purpose.

Where an employee occupies the premises, see BIM46820,

In the case of property held as trading stock, where there is an excess of expenses over rents received, see BIM51555.