View the related Tax Guidance about Property income for companies
Post-cessation receipts and expenses of a property business
Post-cessation receipts and expenses of a property businessCessation of a property businessThis guidance note applies to companies and unincorporated businesses with a property rental business which has ceased. The rules are similar to those in the Post-cessation receipts and expenses of a trade guidance note. The date of cessation of a property business is a question of fact.As a UK property business is a pool of all the taxpayer’s income-generating property in the UK, the date of cessation of a property business is usually when the final UK property is sold. So if, for example, the taxpayer owned five UK properties which were rented out, even if four of these properties were sold, the UK property business would continue until the sale of the final property. Alternatively, the property business could cease when all the properties are used for non-business purposes, for example the business consists of one property and, after the tenant leaves, the owner moves into the property. An individual partner will permanently cease to carry on their property business when retiring from the partnership, even if the remaining partners carry on the business afterwards. For a company, the cessation of the property business will also occur if the company ceases to be within the charge to corporation tax. The date of cessation is important as it has implications for any property business losses and any post-cessation receipts and expenses. The implications of the cessation of the business for the purposes of unused property business losses is
Investment companies and companies with investment business
Investment companies and companies with investment businessDistinction between trading and investment companiesThe distinction between trading and investment companies is important for a number of reasons. For instance, the rules relating to the expenses which are allowable for tax purposes can differ between the two types of company. Broadly speaking, trading companies are able to deduct allowable revenue expenses from trading income, and investment companies can deduct expenses incurred in managing investments. Further information regarding the deductibility of these types of expenses, together with details of exclusions, can be found in the Management expenses guidance note.In addition to this, the options available for relieving excess management expenses also differ from trading loss relief, see the Excess management expenses guidance note.Until 31 March 2004, an investment company was defined as ‘any company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom’. Prior to this date, relief for management expenses was limited to companies satisfying this definition. This excluded a company which had both an investment business and a substantial trade. However, from 1 April 2004, this definition was relaxed and relief for management expenses became available to any ‘company with investment business’. Broadly, this meant that the business only had to partly consist of making investments. This definition is considered in more detail below. It should be noted that the more restrictive ‘investment company’ definition is still relevant when considering which companies may claim relief against income for capital
Overseas property businesses for companies
Overseas property businesses for companiesOverviewReal estate income is generally taxed where the property is located; the UK’s network of tax treaties generally allow the jurisdiction where the land is located to tax income from the land.Therefore, a UK company with overseas property may be subject to tax in the foreign jurisdiction as well as in the UK, as UK tax rules subject a UK company to UK corporation tax on its worldwide profits including from foreign land and property. Relief for overseas tax on property income may be available by treaty relief, unilateral relief or deduction relief, depending on the circumstances. There is unfortunately no substitute for checking the tax treaty to see if one country has unilateral taxing rights, or otherwise how its provisions may affect double tax relief. The relevant provisions to check will depend on the nature of the income, such as rental or trading. Basis of taxation of foreign property incomeWhere the business of the UK company is such that the income from property is taxed as trading income, rather than gains (eg where the company is a property developer or trades in property such as flipping), then the UK tax treaties, where applicable, may provide relief from overseas taxes under the business profits article. Where the UK company does not have a permanent establishment in the treaty country, the UK will generally have taxing rights over business profits over the UK company, including the profits of a property business.Where the UK company is a
Tax implications of trade and asset sales
Tax implications of trade and asset salesA business can be sold either by selling the shares in the company that runs it (a share sale) or by that company setting the trade and assets directly (an asset sale). See the Comparison of share sale and trade and asset sale for an overview of the main tax differences in these two sale structures.A trade and assets sale may involve the disposal of specified assets, and possibly the assumption of certain liabilities, along with a trade. The tax implications of the transaction will depend on the specific items being transferred, since there is a series of separate disposals of the various assets involved. This could involve the following:•premises such as office buildings or factories•trading stock•plant or machinery•other assets held on capital account•intangible fixed assets, such as intellectual property (patents, know-how, etc) and goodwill•debtors and cashThe consideration specified in the sale and purchase agreement (SPA) will usually be for the acquisition of the business as a whole. For the purposes of calculating the tax liability of the company disposing of the assets, the consideration needs to be broken down between the various components included in the sale. The way in which it is allocated between assets is a key area for tax planning.For a transaction between connected parties, the apportionment of consideration in the SPA will usually be acceptable but HMRC may impose a ‘just and reasonable’ basis in certain circumstances (see below).See Simon’s Taxes D6.436
Taxation of property income for companies
Taxation of property income for companiesThis guidance note summarises the position where a company has an investment in property and is therefore subject to corporation tax on income from property held as a fixed asset. For details of the taxation of property income for individuals, see the Taxation of property income for individuals 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.Property receiptsFor corporation tax purposes, rental profits from land and buildings are categorised and pooled as either:•a UK property business, or•an overseas property business, see the Overseas property businesses for companies guidance note•furnished holiday let (FHL) businesses are distinguished further into UK and EEA FHL businesses. These are calculated and reported separately, although it should be noted that the furnished holiday let tax regime is being abolished from April 2025 see the Furnished holiday lets guidance note For properties let at an uncommercial rent, the expenses are limited to the amount of the rent. See the Allowable expenses for property businesses 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.What is property income?A UK company’s UK property business consists of ‘every business which the company carries on for generating income from land in the UK, and every transaction which the company enters into
Taxation of property income for individuals
Taxation of property income for individualsThis guidance note summarises the position where the individual has an investment in a letting 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.For a client factsheet which summarises the key tax implications for an individual investing in a buy to let property see the Client factsheet ― investing in a buy to let property.UK property businessFor income tax purposes, rental profits from land and buildings are categorised as either:•a UK property business, or•an overseas property business, see the Overseas property business for individuals guidance noteEngland, 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
Taxable total profits (TTP)
Taxable total profits (TTP)Companies are liable to corporation tax on their taxable total profits (TTP). Companies do not pay capital gains tax, but instead the chargeable gains made on disposal of capital assets held by a company attract a corporation tax liability by being added to TTP.The definition of ‘profits’ includes the following most common items which are covered in more detail below:•trading income•chargeable gains•dividends which are not exempt•non-trading loan relationship income•property business income•overseas income•miscellaneous incomeTTP are reduced by qualifying charitable donations (see below). See Example 1 for an illustration of the treatment of qualifying charitable donations and other adjustments. See the Proforma ― corporation tax computation which sets out a straightforward template, with links to detailed guidance notes for each item. The proforma can also be downloaded in Excel format.The Checklist ― preparation of the corporation tax computation sets out a list of queries that may be helpful in gathering the information required to complete the computation.Trading profitsThe calculation of trading profits and the adjustments that must be made for companies is dealt with in the Adjustment of profits ― overview guidance note. The starting point for calculating trading profits is the profit before tax figure in the company’s accounts, adjusted for certain items as specified by tax law.For example, interest costs incurred on non-trading loan relationships must be added back to the accounting profit in order to arrive at the trading profit figure. Relief for this interest is given instead
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