Income excluded from UK property business: overview
Income excluded from a rental business
There are certain receipts which can arise out of the use of land and which are specifically excluded by statute from a rental business. These include:
income from the occupation of woodlands managed on a commercial basis, for example when you cut and sell the timber; but income from letting such woodlands is included,
income from the types of concerns listed below (which are taxed as trading income):
mines and quarries (including gravel pits, sand pits and brick fields),
ironworks, gasworks, salt springs or works, alum mines or works and water works and streams of water,
canals, inland navigations, docks, and drains or levels,
fishing (see below),
rights of markets and fairs, tolls, bridges and ferries,
railways and other ways,
other concerns of a like nature to those above,
lettings of tied premises by traders,
farming and market gardening.
The fishing activities excluded from property income are those carried on by a substantial commercial undertaking. These are a ‘concern’ within ITTOIA05/S12 or CTA09/S55. The letting of fishing rights is not usually a ‘concern’ of this type and the profits from it are included (see PIM1070).
Hotels and guest houses
Profits from running hotels and guest houses are taxed under the rules for trades and are not part of a rental business (see PIM4300).
Rents from tied premises are wholly trading receipts and do not form part of the rental business. The same applies to the taxable amount of any premium received. Any expenditure on the tied premises will be deducted in the computation of the trading profits and should similarly be excluded from the rental business (ITTOIA05/S19 or CTA09/S42).
The proprietor of a caravan site may carry on material activities associated with the operation of that site which amount to trading. If so, receipts of that trade can include any receipts from letting caravans even though the letting does not, of itself, amount to a trade. Such receipts will not, therefore, be part of the letting business and nor will the associated expenses (ESCB29 or ITTOIA05/S20).
Lodgers and tenants in your own home
The regular provision of meals to lodgers or tenants in the taxpayer’s own home is also likely to amount to a trade. The trade will usually encompass all the receipts from the lodgers or tenants in their home; that is, the payments the lodgers or tenants make for lodging, board, cleaning, laundry etc. The trade will be taxable under the trading rules. The rent-a-room rules may apply here; see PIM4000 onwards.
Extra services to tenants
Where a taxpayer lets a property (which isn’t their home) and they provide additional services to their tenants:
rent or other payments for the use of the property and furniture, furnishings, fittings etc. will not be trading receipts they will remain receipts of the rental business, but
the additional services may be sufficient to give rise to a trade which is taxable quite separately from the rental business; if there isn’t a trade the receipts may fall within under ITTOIA05/S688 or Part 10 CTA09.
More details about when a trade exists are at PIM4300.
Letting surplus trade accommodation
Rent received from letting surplus trade accommodation is strictly assessable as property income. In practice HMRC will, subject to certain conditions, allow taxpayers who let business accommodation temporarily surplus to the requirements of their trade to take the rent received in respect of that accommodation, and any related expenses, into account in calculating the profits of the trade (see BIM41015). This practice is given statutory effect for IT cases for 2005-06 onwards by ITTOIA05/S21.
Rent from overseas properties
Overseas properties are charged to tax separately (see PIM4700 onwards).
Profits derived from the occupation of land
The profits of a property business essentially derive from the exploitation of an interest in land and are not profits derived from what happens on the land, see ITTOIA05/S9-S11 and CTA09/S36-38.
Wayleaves, easements and rents receivable in connection with mines and other concerns
For guidance see:
Other property income excluded from the UK property business
As a consequence of ITTOIA05 some income that is within Part 10 CTA09 for companies (previously case VI) is now property income for IT payers. But the income is not part of the UK property business (see PIM1113).