Property Business: A Beginner’s Guide to Profits and Losses

Looking to get into property business or expand an existing portfolio but not sure where to start? Look no further!

Property Business
Property Business

(2 minute read)

We’ll be discussing:

  • How property income is taxed
  • Using losses to your advantage
  • Special reliefs

Taxing Property Income

Property income is income you derive from an interest in a property.

For example, if you profit from renting out a property, you’re benefitting from an interest in the property.

Property business activities are generally treated as trading (with some exceptions). This means that running such a business can be confusing even for seasoned businesspeople.

General tax features of property businesses are as follows:

  • The cash basis is the default for unincorporated businesses that generate under £150,000. However, you may opt for the accruals basis instead.
  • You don’t pay National Insurance Contributions if you operate individually.

(HMRC has rules to determine if you operate as an individual or formal business. Assess your situation carefully with specialist consultation.)

Mitigating Property Business Losses

Starting out is difficult. As a result, many landlords make losses in their first years.

The good news is that losses can reduce your future tax bill!

There are three main types of loss relief: automatic relief, bringing losses forward and limited sideways relief.

Automatic relief occurs when part of your business makes a loss, but you make gains overall.

For example, let’s say you rent out two properties, making £6,000 profit on property A but a £1,000 loss on property B.

The loss is automatically deducted from the gain, leaving you with net £5,000 profit.

Bringing property business losses forward is the most common way to mitigate loss. Carry losses forward to offset tax obligations in the next profitable year.

Landlords can carry losses forward indefinitely until used fully.

You can also claim limited sideways relief when losses are caused by capital allowances or agricultural expenses. This relief allows some losses to be off set against general income.

Special Reliefs

Although you generally can’t claim capital allowances for an ordinary property business (with some exceptions), you can still make use of special reliefs.

For small-scale landlords renting out furnished accommodation in their primary home, Rent-a-Room Relief provides welcome relief from Income tax.

Replacement of Domestic Items Relief has replaced the old Wear-and-Tear Relief. Now, landlords can claim tax relief when they replace domestic items such as furniture and appliances.

Ilyas Patel, a successful landlord himself, spearhead the Tax Expert team. He has years of experience in making his and his clients’ businesses thrive.

Call us today at 01772 788200 to see how we can make your property business venture into a roaring success!

Kind regards Ilyas