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HMRC internal manual

Property Income Manual

HM Revenue & Customs
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Deductions: General rules: Main types of expenses: Providing services (cost of)

As well as renting a property to a tenant a landlord may also provide additional services. They can claim the cost of providing those services as an allowable deduction of their rental business provided the receipts they earn from them are also included as part of their rental business income. See the example of Susan below.

Exceptionally the provision of services can amount to a trade distinct from the rental business. Here neither the income nor the expenditure relating to these services will be included in the rental business. See the example of Clare below.

Example of rental business servicesSusan lets out a furnished house. She charges £800 rent each calendar month. Under the terms of the agreement Susan is responsible for cleaning the house and for maintaining the garden. She pays a cleaning agency and a gardener a total of £100 a month for 16 hours general housework and 12 hours gardening every month.

Here the full £9,600 annual rent is assessable as a rental business receipt and the £1,200 for cleaning and gardening is allowable as a deduction in computing the assessable profits of the rental business. The cleaning and gardening does not amount to a distinct trade; they are just ordinary incidents of the letting business.

Example of separate trade of providing servicesClare lets out five furnished flats to tenants on three-year leases. The flats are all in the same building and the lease agreements charge an annual rent for each flat. In addition, she makes a separate charge dependent on the size of the flat to cover the provision of the following services: electricity, gas, hot water and central heating to each flat; the provision of linen and laundry facilities in the basement; weekly cleaning of each flat and of common parts; 24-hour reception and porter facilities and general maintenance of all machinery provided in each flat.

The provision of these extra services (but not the provision of the flats themselves) is agreed with the tax office to amount to a trade. Thus Clare will only include in her rental business the rental income she receives. The separate charge for services is excluded and so are the costs of those services. The service charge and service expenses will be charged to tax using the rules for trades.

Rental business isn’t usually a tradeIt is unusual for a rental business to amount to a trade except in the case of a hotel, guest house or similar activity where meals, cleaning, changes of linen etc are provided. Where there is a hotel etc trade, the earnings from guests and the cost of providing the services (meals, cleaning etc) are all included in the computation of the trading profits of that hotel etc. The costs are not then allowable as a deduction against rental business income. There is more guidance on this subject at