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HMRC internal manual

Property Income Manual

Introduction: overview

The key features of the current IT system for taxing rents from UK properties are:

  • It started on 6 April 1995.
  • Profit and loss computations must be on a current, fiscal year basis. That is, the profit for the year ended 5 April 1996 is charged for 1995-96 and so on for later years (PIM1010). There are two exceptions:

    • a property let by a trading or professional partnership uses the trade basis period (PIM1040), and
    • the trade basis period applies where the letting amounts to a trade, as in a hotel or guest house business (PIM4300).
  • The current system applies to both furnished and unfurnished lettings, including furnished holiday lettings (PIM4100 onwards) and rent-a-room (PIM4000 onwards).
  • The 10% of net rent ‘wear and tear’ allowance remains available for furnished lettings (PIM3200).
  • Profits and losses of a rental business are computed using trading principles. You begin with accounts drawn up in accordance with correct accountancy principles. Receipts and expenses of the rental business are recognised on the earnings basis (PIM1101).
  • The SA rules for payments on account and balancing payments apply in the same way as for other income.
  • Rents from properties outside the UK are returned as foreign income and not as UK property income (PIM4700 onwards).
  • The current rules for companies started on 1 April 1998 (PIM1003). Very broadly, the income of a company from its rental business is calculated in the same way as that of an IT payer. Note, however, that the rules for giving relief for interest and losses are different.
  • For 2005-06 onwards the main IT rules for taxing property income have been brought together in Part 3 of ITTOIA05.

Please contact CTIAA (Technical) if you need guidance on the rules that applied for taxing the rental income of:

  • IT payers before 6 April 1995, and
  • CT payers before 1 April 1998.


For IT payers, that is individuals, trustees and non-resident companies, tax is charged on rental income:

  • under Schedule A by ICTA88/S15 for the years 1995-96 to 2004-05, and
  • as property income by ITTOIA05/S268 for 2005-06 and later years.

For CT payers tax is charged on rental income:

  • under Schedule A by ICTA88/S15 from 1 April 1998.

Provisions which must be given priority

The ‘boundary rules’ in ICTA88/S18 (3) and ITTOIA05/S4 (1) make it clear that a charge under:

  • Schedule A, or
  • Part 3 of ITTOIA05 as UK property income,

generally has priority over a charge under:

  • Schedule D Case I, or
  • Part 2 of ITTOIA05 as trading income.

The sort of receipt to which this rule might apply is rent received by a property developer from the temporary letting of land awaiting development. The rent is taxed as property income, even if it could properly be regarded as a trade receipt.

For exceptions to this rule see PIM1115 (wayleaves) and PIM4703 (Rent from property outside the UK).