Property income

Produced by Tolley

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

  • Property income
  • Type of property business
  • Start of a property business
  • Income and expenses
  • Property income
  • Allowable expenses
  • Deductions for capital expenditure
  • Interest costs
  • Losses of a property business
  • Normal rules
  • More...

Property income

It is common for trustees to receive rental income from properties held as investments.

In general, the same tax principles of property businesses apply to persons, whether they are individuals, trustees or personal representatives, but there are some differences. These principles, and the exceptions which apply to trustees, are discussed below.

Type of property business

For income tax purposes, rental profits from land and buildings are categorised as either:

  1. a UK property business, or

  2. an overseas property business (see the Overseas property business for individuals guidance note)

ITTOIA 2005, ss 264–265

England, Wales, Scotland and Northern Ireland make up the countries of the UK. The Isle of Man and the Channel Islands are treated as overseas for the purposes of the legislation.

This means that UK rental profits are pooled together and reported as one business and overseas rental profits are pooled together and reported as one business.

The exceptions to this are:

  1. furnished holiday lettings which are calculated and reported separately (see the Furnished holiday lets guidance note)

  2. properties let at an uncommercial rent, as the expenses are limited to the amount of the rent

If the trustee runs a property business in another capacity (eg as an individual or a partner in a partnership), this is a separate property business. For example, UK property business losses arising in a trust cannot be offset against UK property business profits arising to the trustee as an individual on his own behalf.

This guidance note refers to a UK property business but the rules apply equally to an overseas property business.

Start of a property business

Trustees starting a property business need to consider whether the venture will be a property business or a trade. See the Property investment or trading? guidance note.

This guidance note only considers a venture that is considered to be a property business (ie falling short of being a trade). For more on the rules applying to trades, see the Badges of trade guidance note.

As a UK property business is a

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