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Rents related to a trade or profession

We explore here certain scenarios where letting property may be treated as trading income, rather than as part of a rental business.

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
  • 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 rental 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 rental 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.

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 rental 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 rental business, or will create one if they did not already have one.


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

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 rental business, or

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

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.

Whole activity part of a rental business

To run a separate trade of providing services (in addition to their rental 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 rental business. Where the customer has a large rental 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 rental 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 rental 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 rental 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 rental business.

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.

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