Owner-Managed Businesses

Taxation of property income for individuals

Produced by Tolley
  • 19 Oct 2021 08:18

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Taxation of property income for individuals
  • UK property business
  • What is property income?
  • Calculation of profits and losses of a property business
  • Jointly held property
  • 50:50 split
  • Beneficial entitlement
  • Other topics relevant to property income for individuals

Taxation of property income for individuals

This guidance note summarises the position where the person has an investment in property as a sole trader or through a partnership and is therefore subject to income tax on property income. For details of the taxation of property income in companies, see the Taxation of property income for companies guidance note and for a comparison of the difference between holding a property as an investment or for trading purposes see the Property investment or trading? guidance note.

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 is considered in the Choosing the business vehicle guidance note.

Also, see Tolley’s Tax Planning 2019/20 Chapter 34.2–34.20.

UK 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

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 profits from UK-situs properties are pooled together and reported as one business, and profits from properties sited outside the UK 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, see the Allowable expenses for property businesses guidance note

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

What is property income?

A person’s UK property business is classed as consisting of every business that the person carries on for the generating of income from land in the UK as well as every transaction which the person enters

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