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HMRC internal manual

Property Income Manual

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HM Revenue & Customs
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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:

  • yearly interest,
  • income from the occupation of woodlands managed on a commercial basis; but income from letting such woodlands is included; income from the occupation of woodlands managed on a commercial basis arises when you cut and sell the timber,
  • 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.

Fishing concerns

The fishing activities excluded from property income are those carried on by a substantial commercial undertaking. These are a ‘concern’ within ICTA88/S55 or ITTOIA05/S12. The letting of fishing rights is not usually a ‘concern’ of this type and the profits from it are included (see PIM1060).

Hotels and guest houses

Profits from running hotels and guest houses are taxed under the rules for trades andare not part of a rental business - PIM4300 has more details.

Tied premises

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, (ICTA88/S98 or ITTOIA05/S19).

Caravan sites

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 Case VI of Schedule D or ITTOIA05/S688.

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 ICTA88/S53 and ITTOIA05/S9, ITTOIA05/S10, ITTOIA05/S11.

Rents and royalties in connection with mines and other concerns

For guidance see:

  • PIM1114 for IT cases up to 2004-05 and CT cases
  • PIM1117 for IT case for 2005-06 onwards.

Wayleaves and easements

For guidance on what these are and how they are treated for tax purposes see:

  • PIM1114 for IT cases up to 2004-05 and CT cases
  • PIM1115 and PIM1118 for IT case for 2005-06 onwards.

Other property income excluded from the UK property business

As a consequence of ITTOIA05 some income that is within Case VI for companies is now property income for IT payers. But the income is not part of the UK property business -see PIM1113.