An at a glance free view guide to property profits and losses. Subscribers click here for your detailed guide

At a glance

Property income

Property income describes income that arises from exploiting an interest in a property. Typically property income will be rental income.

A property business is not treated in the same way as trading activity for income tax purposes. 

Property income: what is the basis of assessment?

The profits and losses from a property business are calculated on the same basis as those from a trade or profession.

  • From 6 April 2017 the Cash basis is the default method for unincorporated property businesses with receipts under £150,000.  Taxpayers can elect to apply the accruals basis instead.
  • Profits and losses are calculated on a tax year basis for individuals, but by accounting period for companies.
  • Partnerships have special rules. 

Property losses

  • Property losses may be offset against any other property profits of the year and then carried forward against the future profits of the same business.
  • There are special rules where a loss is created by capital allowances or the business is in agriculture. See Adviser guide: Property profits and losses

 Loss claims: Income Tax

  • Losses incurred in a year of assessment are either offset against property profits of the year, or carried forward and set against any profits of the property business for future years.
  • There may be restrictions to loss relief if the property is not let on a commercial basis. 

Loss claims: Corporation Tax

  • A property loss must first be set against the company's total profits for that accounting period.
  • An unrelieved loss may then be used various different ways.

Capital allowances

A property business is a "Qualifying activity" for the purposes of plant and machinery capital allowances, but capital allowances cannot be claimed for an ordinary property letting business consisting of the letting of a dwelling house except in certain circumstances:

Capital allowances are not generally available under the cash basis, but some assets may qualify. See Adviser guide: Property profits and losses. 

Wear and tear allowance or repairs and renewals to furniture?

Up to April 2016 taxpayers could claim either:

  • A 10% wear and tear allowance or
  • The cost of providing furniture, or replacing or renewing tools as an expense.

From April 2016:

The ‘wear and tear allowance’ is replaced by the Replacement of Domestic Items Relief.

Lease premiums

Joint Property

  • Joint property is not treated as a partnership for tax unless there the owners have decided to run it as a commercial partnership.
  • See Joint Property for more details 

Deductible expenses

Property businesses may deduct expenses as long as they are:

  1. Incurred wholly and exclusively for business purposes and
  2. Not of a capital nature.

It follows that many of the allowable deductions will be on the same principles as for trading business. See What expenses can I claim?.

Motor expenses: from 6 April 2017

Finance Act 2018 added the use of authorised mileage rates for landlords but with certain restrictions.

Rent A Room relief

  • An individual may rent a room in their own residence, and provided the rental income does not exceed the statutory threshold (currently £7,500) the relief completely exempts the rental income.
  • See Rent A Room relief for when this relief does and does not apply.

VAT

Rental income is generally exempt from VAT. The owner of a commercial building may elect to tax a building (this is under option to tax arrangements).

Construction Industry Scheme (CIS)

Property investors are not required to register for the CIS unless their activities turn them into property developers.

Capital gains tax

A profit or gain made on the disposal of the freehold or a leasehold interest in property is subject to capital gains tax.

Capital gains tax reliefs

Disposal of you home or second home

  • Private residence relief (PRR) gives you relief from capital gains tax on the disposal of your home. This relief is automatic providing you meet all the qualifying conditions. 
  • Lettings relief is a further relief from capital gains tax if you have let out your home.
  • If you are letting a property, privately or via airbnb you may cease to qualify for PPR from April 2020.
  • See Private Residence Relief: At a glance

Disposal of a property 

Links:

This guide should be read with our Property profit & losses tax toolkits:

 

 

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