Rent received from letting surplus business accommodation is strictly assessable as property income. However, in some cases, rents from surplus business accommodation may be included in the calculation of the trading profits if certain conditions are met.
These conditions are:
- the accommodation must be temporarily surplus to current business requirements. S21 of Income Tax (Trading and Other Income) Act 2005 sets out rules for determining whether the accommodation is temporarily surplus to requirements. These are:
- that the accommodation must have been used for the purposes of the trade within the last three years (or acquired within that period).
- that the accommodation must be let for a term of not more than three years.
- that the trader must intend to use the accommodation for trade purposes at a later date.
- the accommodation must not be trading stock of the trader.
- 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.
If all the conditions are satisfied, the rents from lettings of surplus business accommodation can be included in the computation of trade profits. This treatment must then continue as long as the
conditions are satisfied.