Property income

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Property income
  • Property income or trading income?
  • Choice of holding vehicle for the property
  • UK property business
  • Property income
  • Jointly held property

This document discusses the calculation of the relief, including conditions for deemed occupation, non-qualifying tax years, delay in taking up residence, the letting relief rules and the anti-avoidance rules.


Property income or trading income?

The distinction between dealing or developing property (trading income) and investing in property (property income) is sometimes a difficult one to make. The categorisation is important as a trader is subject to national insurance on trading profits, whereas national insurance is not payable on property income.

It may be clear cut as to whether a person is dealing or investing: someone buying property to let out long term is likely to be making an investment; someone buying a property to refurbish and sell is likely to be trading. However, in many other cases the answer is not so obvious.

The first place to start is to consider the ‘badges of trade’ and apply them to your client’s situation. The badges of trade are not a statutory concept, but have been developed through case law to identify when a person is undertaking a trading activity. A summary of the badges of trade is given in the Badges of trade guidance note.

The application of the badges of trade in relation to property is considered in the Property investment or trading? guidance note.

The rest of this guidance note considers the situation where the person has an investment in property and is therefore subject to income tax on property income.

Choice of holding vehicle for the property

The choice of the holding vehicle is a very important one; should the property be held by the individual, in a partnership, within a trust or by a company? This is a decision which is ideally taken at the outset and it will depend on legal, commercial and administrative factors as well as taxation.

In terms of whether the property should be held individually, in partnership or in a company, the factors will be very similar to those for choosing a trading vehicle. This

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