Property Income is defined in the income tax legislation as, income from rent or other receipts less expenses, from properties and estates and/or any interest or rights in or over land in the United Kingdom or abroad.
Normally income from property is not trading income even if a person works full-time running the rental business. For this reason property income cannot be offset against other trade losses.
Exceptionally though, the provision of services by a landlord can amount to a trade distinct from the rental business. Here, neither the income nor the expenditure relating to these services will be included in the property income figure. It will be assessed as trading income.
Rental Income may be exempt from tax by virtue of the “rent-a-room” scheme.
Rent-a-room applies to income from providing furnished residential accommodation in the taxpayer’s only or main home*. For example, a taxpayer may benefit where they take in a lodger. The rules either exempt rental income or tax it on a more favourable basis.
Under rent-a-room a taxpayer can be exempt from Income Tax on profits from furnished accommodation in their only or main home if the gross receipts they get (that is, before expenses) are £4,250 or less.
We can assist by applying the best method to minimise your tax liabilities.
*on or after 6 April 1992