HMRC Updates Property Income Manual

Overview of Income Chargeable: Property Business Income

The scope of profits derived from a property business is extensive. A taxpayer is required to:

• Include all rents and comparable receipts generated from the utilisation of land or property located within the United Kingdom, and
• Deduct only the business-related expenses incurred in the process of earning such income, excluding capital expenditures (refer to PIM1900 onwards).

Certain capital expenditures may qualify for separate relief (see PIM3010).

Income generated from properties situated outside the UK—referred to as overseas property income—is subject to taxation as foreign income; however, the computational framework generally mirrors that applied domestically (see PIM4700 onwards).

Typically, income arising from UK-based property businesses predominantly consists of rental payments received from tenants or licensees of land and property. It is important to note that:

• Rental income from various types of premises—including furnished or unfurnished, commercial or residential, and even unimproved land—is taxable as property income.
• Where property is let furnished, any distinct payments made by tenants for the use of furniture or similar amenities are also classified as property business receipts (see PIM1060).
• Less frequent forms of income from land, such as those derived from fishing rights, also constitute taxable property income (detailed below).
• Taxable receipts encompass both monetary payments and payments in kind.

In addition to rent, other categories of receipts form part of property business income. Principal examples include:

• Rentcharges, ground rents, and feu duties (PIM1056),
• Premiums and analogous lump-sum payments received upon granting certain leases (PIM1200 onwards),
• Reverse premiums (refer to ITTOIA05/S311 and BIM41050),
• Income from granting sporting rights, such as fishing or shooting permits (PIM1070),
• Payments for permitting waste burial or storage on land (PIM1054),
• Income derived from allowing third parties to use land temporarily (e.g., payments by film crews for location use),
• Grants from local authorities or other bodies contributing to revenue expenses—such as property repairs—which are deductible when calculating property business income. ‘Revenue’ expenses generally refer to ongoing operational costs rather than capital expenditures (PIM1058),
• Rental income received through enterprise zone trust arrangements,
• Income from stationary caravans or houseboats (subject to conditions, see ESC/B29 and ITTOIA05/S20),
• Service charges collected from tenants for certain ancillary services related to property occupation (PIM4300),
• Excess payments received from Renewable Heat Incentives (RHI) or Feed-in Tariffs (FIT) beyond the cost of supplying energy to tenants, ancillary to property occupation (PIM2076 and PIM4300),
• Reimbursements or refunds of property business expenses that have previously been deducted for tax purposes,
• Security deposits or bonds obtained from tenants (further details below),
• Insurance recoveries under policies protecting against rent non-payment (PIM1058).

For corporate entities, Part 8 of the Corporation Tax Act 2009 (CTA09) stipulates that certain credits and debits are treated as property business receipts and expenses. Additional guidance can be found in the Corporate Intangibles Research and Development Manual at CIRD13520.

Income explicitly excluded from the property business category is listed at PIM1110.

Single Transactions Treated as Business Income

Income such as rent or other receipts arising from a single transaction exploiting rights over UK land is considered as income from a property business. This provision ensures that income from one-off or occasional lettings is subject to property income charge, even if the activity lacks the organisational structure typical of a business.

Distinction Between Rental Receipts and Trade Receipts

Legal precedents have established that income derived from rights in UK land rarely qualifies as trading income, with exceptions generally limited to hotel or guesthouse operations, where the entirety of income from guests is usually treated as trading income. The extent of personal effort or time invested by the taxpayer in their letting business does not convert rental income into trading income (see PIM4300 for further details). (Refer to cases such as Salisbury House Estates Ltd v Fry [1930] 15TC266 and Griffiths v Jackson [1982] 56TC583.)

In general, profits from property businesses are calculated similarly to trade profits. However, a fundamental distinction persists between deriving income from property ownership rights as investment returns and conducting a trade.

Special Cases: Furnished Lettings

There are two specific categories of furnished lettings warranting separate consideration:

• Rent-a-room scheme (letting a room in one’s own residence; see PIM4000 onwards),
• Furnished holiday lettings (see PIM4100 onwards).

It should be noted that the furnished holiday lettings rules will no longer apply for Income Tax and Capital Gains Tax from tax years commencing on or after 6 April 2025, and for Corporation Tax and Corporation Tax on chargeable gains from 1 April 2025.

Definition of Receipts

Receipts constituting property business income include:

• Payments made in respect of a licence to occupy or otherwise utilise land,
• Payments arising from exercising any other rights over land,
• Rentcharges and other annual payments reserved on, charged against, or issuing out of land (see PIM1056 for comprehensive details).