HMRC internal manual

Property Income Manual

PIM1001 - Introduction: overview

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

  • 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).
  • Replacement of domestic items relief (PIM3210 onwards) allows a deduction for certain capital items
  • Profits and losses of a rental business are computed using the cash basis for most IT customers as of 2017-18. This is subject to certain exceptions (see PIM1090 onwards).
  • For those excepted from the cash basis, as well as those within charge ti corporation tax (CT), normal trading income rules are used. You begin with accounts drawn up in accordance with generally accepted accountancy principles. Receipts and expenses of the rental business are recognised on the earnings basis (PIM1100 onwards).
  • As of tax year 2017-18, a property allowance is available which allows property income within a certain threshold to be fully relieved - or where property income exceeds that threshold, partial relief may be available.
  • The self-assessment 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 (PIM1005). 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.
  • From 2017-18, restrictions on relief for mortgage and other loan interest for income tax purposes have come into force (PIM2050 onwards)
  • For 2005-06 onwards the main IT rules for taxing property income have been brought together in Part 3 of ITTOIA05.

From 2020-21, non-UK resident companies are charged to CT (and not IT) on their income from UK property.

Please contact HMRC’s Business, Assets and International Directorate 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, and
  • As property income by CTA09/Part 4 for accounting periods ending on or after 1 April 2009

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 PIM1114 (wayleaves) and PIM4700 onwards (Rent from property outside the UK).