PIM4300 - Rents related to a trade or profession
Source: gov.uk (2025-07-25)


ITTOIA05/S21 and CTA09/S44

Trading premises: rents of surplus part let

A trade or profession may include rents from temporarily surplus trading or professional accommodation in the trading or professional profit or loss computation.

If the customer carries on a trade or profession and has such surplus accommodation that they let, they can, if they wish, treat the rent they get for it as a trading or professional receipt. This can only be done in the following circumstances:

the accommodation must be temporarily surplus to current business requirements,

the premises must be used partly for the business and partly let; in other words, rents from a separate property which is wholly surplus must be dealt with as property income,

the rental income must be comparatively small (since otherwise, the tax liability resulting may not approximate to the strict statutory liability),

the rents must be in respect of the letting of surplus business accommodation only and not of land.

Receipts from the letting of surplus business accommodation are treated as trading income and will not form a part of the customer’s property business (provided they meet the conditions set out above). Any expenditure on the surplus accommodation is deducted in the computation of the trading or professional profits and must be excluded from their property business.

Separate property surplus to requirements of the trade

The customer may carry on a trade or profession in which a separate property becomes surplus to their trading or professional requirements. If they don’t sublet the property, they can usually deduct the rent and other expenses of that property in computing their trading or professional profits. The test is whether they undertook the rental obligations of the surplus property ‘wholly and exclusively’ for the purposes of their trade or profession (Hyett v Lennard [1940] 23TC346).

Normally, the test would be met if the customer entered into the lease in order to use the property in their trade or profession. But the expenses of a private property or a property business property wouldn’t meet this test. Nor would the expenses of a former trading or professional property where, after it became surplus:

the customer renewed the lease, perhaps because they wished to continue subletting, or

the customer didn’t exercise an option to terminate the lease that was available; for example, by giving notice to the landlord.

If the customer sublets the surplus property (and the expenses are deductible in computing the profits of their trade or profession) the position is:

strictly, any rents etc. they receive are taxed as rental income with no deductions for those expenses which qualify as expenses of the trade or profession, since the ‘wholly and exclusively’ test isn’t met for the property business; but they can, if they wish, deduct those expenses in the property business instead of their trade or profession so that only the net profit is charged as property income,

any excess of expenses over receipts from the surplus property can be deducted in computing the profits of their trade or profession, provided the expenses meet the ‘wholly and exclusively’ test (see above).

Expenses of let properties held as trading stock

The customer may be a property dealer or developer who holds property as trading stock. The running costs of that property while awaiting sale (such as maintenance or background heating) will be expenses of their trade as a property dealer or developer. They can’t deduct those expenses in any property business they also carry on.

The customer may temporarily let the property they hold as trading stock while awaiting a buyer. Here the rental receipts will fall into their property business, or will create one if they did not already have one. Then:

any revenue expenses of the letting of the trading stock must be deducted, in the first place, from the letting receipts,

any net profit will be part of the property business result,

any excess of letting expenditure of the trading stock over the property business receipts is an expense of their property dealing or developing trade.

In some cases the customer may buy a property, such as a block of flats, and then buy out the tenants over a period with a view to selling on the whole block. In this case they will need to separate the expenses of the let flats from those they no longer intend to let and which therefore cease to be part of their property business. Following the principles already outlined; the expenses of the unlet flats can only be deducted in computing the property dealing profit or loss.

Tied premises

Rents from tied premises are wholly trading receipts and do not form part of the property business. The same applies to the taxable amount of any premium received. Any expenditure on the tied premises will be deducted in the computation of the trading profits and should similarly be excluded from the property business. See:

CTA09/S42 for CT cases and

ITTOIA05/S19 for IT cases.

Caravan sites

The proprietor of a caravan site may carry on material activities associated with the operation of that site which amount to trading. If so, receipts of that trade can include any receipts from letting caravans even though the letting does not, of itself, amount to a trade. Such receipts will not, therefore, be part of the letting business and nor will the associated expenses. See:

CTA09/S43 for CT cases and

ITTOIA05/S20 for IT cases.

Hotels and guest houses

Profits from running hotels and guest houses are taxed under the rules for trades and are not part of a property business.

Letting property and providing additional services

Where the customer lets property and provides additional services to the tenants it is a question of fact whether:

the whole activity (the letting of property and the services) amounts to a trade, or

the whole activity is part of their property business, or

the provision of services amounts to a trade that is separate from their property business.

Case law

The separation of property income from trading income is a long established principle in UK tax law. In Salisbury House Estate Ltd v Fry [1930] 15TC266, Lord Atkin said:

'... the schedules are mutually exclusive; the specific income must be assessed under the specific schedule' (p.319).

and Lord MacMillan said:

'A landowner may conduct a trade on his premises, but he cannot be represented as carrying on a trade of owning land because he makes an income by letting it.' (p.330).

Lord MacMillan goes on to raise the possibility that a landowner may be providing services which are a separate trade.

The principle of Salisbury House Estate Ltd v Fry [1930] 15TC266 has often been applied by the courts subsequently. See, for example, Griffiths v Jackson [1982] 56TC583 where there is a useful review of the authorities.

Although property income is now computed like trading income, letting is still not a trade.

Whole activity a trade

The whole letting activity will only constitute a trade where the owner remains in occupation of the property and provides services over and above those usually provided by a landlord. The provision of bed and breakfast, for example, is clearly trading. Essentially the distinction lies between the hotelier (who is carrying on a trade) and the provider of furnished accommodation (who is not). An important difference is that in a hotel etc. the occupier of the room does not acquire any legal interest in the property.

Whole activity part of a property business

To run a separate trade of providing services (in addition to their property business) the customer needs to show that what they offer goes well beyond the services normally provided by a landlord. Examples of services normally provided by a landlord include:

the cleaning of stairs and passages in multi-unit premises,

the provision of hot water and heating,

supervision involving rent collection and arranging new tenancies,

arranging for repairs to the property.

The fact that the customer provides any or all of the services listed above does not mean that their whole activity is a trade or that any separate earnings from those services arise from a trade. The receipts are part of their property business. Where the customer has a large property business they may need to work full time in order to provide these services; but that doesn’t change their nature, it is just a result of the number of properties they own.

Separate trade in addition to property business

The customer may, however, carry on a separate trade where they provide the following services:

the regular cleaning of rooms when they are let and not just between changes of tenant,

the regular supply of clean linen,

the regular provision of meals.

The provision of these services does not, however, make the whole property business a trade.

The customer’s receipts from the trading services are taken into account in calculating a separate trading profit and the rents they get for letting the property are included in calculating their property business profits. Where they get a single payment for the two separate activities they will need to split it for tax purposes. They should do this on a reasonable basis that reflects the value of each activity.

The customer’s expenses will similarly need to be split between their trade and their property business.

Are the services normally provided by a landlord?

If the provision of services is to be treated as a separate trade, then those services would have to go beyond those which landlords normally provide. See above for examples of the kinds of services that landlords commonly provide, and also examples of services they do not commonly provide. If regular meals are provided, it may be more likely that the whole activity is a trade, including the letting element.

It is not conclusive, but it is more likely to be appropriate to treat the services as being provided in the course of a separate trade if there is a separate charge for them. But this would not necessarily be the case, especially if the tenants have no option to pay the rent only, and do without the services and the service charge.

Renewable Heat Incentive (RHI) and Feed In Tariff (FIT) payments

Landlords who provide energy to their tenants may receive RHI or FIT payments if the energy is generated from energy-efficient sources. As explained at PIM2076 (https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2076), these payments should be treated as a reduction in the cost of providing the energy. Any excess will be treated as property income.

Some landlords may generate energy for an alternative purpose or additional purpose to providing it to their tenants. In that case, the treatment in the previous paragraph applies to the extent energy is provided to tenants. Any excess income relating to energy generated for another purpose are likely to be taxable as miscellaneous income, unless the activity amounts to a trade.

Some landlords may generate energy from a let property under arrangements with licensed energy providers which benefit their tenants, but without the landlord and the tenant entering into an agreement for the supply of energy. The tenant’s only (contractual) provider of energy is a third-party energy supplier. In these circumstances any excess RHI or FIT payments to the landlord do not represent property income, as the income arises from providing energy to a third party and not from providing electricity to a tenant as part of a property letting activity.

Example 1

ABC Ltd Lets part of its headquarters to XYZ Ltd. The electricity bill for the whole building is received by ABC Ltd, with 50% recharged to XYZ Ltd. ABC has installed solar panels on the roof of the building and receives feed in tariff (FIT) payments which exceed the cost of electricity bought in.

In this example, half of the excess FIT payments relate to ABC’s own use of the building, and are taxed as miscellaneous income as the activity giving rise to the income is not a trade. Half of the excess FIT payments relates to ABC’s letting of property to XYZ, so is taxed as property income.

Example 2

Housing123 lets residential flats to its tenants. Housing123 has installed solar panels on the roof of the building and registered the panels with a licenced energy supplier (ElecCo) as part of the feed in tariff scheme. It receives feed in tariff (FIT) payments from ElecCo which exceed the cost of the electricity bought in. As part of the arrangements between ElecCo and Housing 123, ElecCo offers discounted electricity to Housing123’s tenants.

In this example, Housing123 does not supply electricity to its tenants. FIT payments are not property income because they are not part of Housing123’s letting activity. The payments are taxed as miscellaneous income as the activity giving rise to the income is not a trade.