Tax Credits: Property income

The capital value of any property held by claimant, or their partner, is ignored but the rental income/profit is taken into account, unless exempt from income tax or excluded from profits under the rent-a-room scheme (section 791 ff of ITTOIA 2005). Property income for tax credits is calculated in the same way as for income tax under ITTOIA 2005, Part 3.

The rental income/profit from an overseas property business is taken into account as foreign income.

Property income does not include amounts which are exempt from income tax or excluded from profits under the rent-a-room scheme (section 791 ff of ITTOIA 2005).

Where a property business makes a loss which the claimant’s general income is insufficient to absorb, the surplus is relieved in the same way as for income tax under ITA 2007, sections 118 and 119, by carry-forward against profits of the same property business in future years, taking earlier years first.

In addition, if part of the loss arises from capital allowances or from agricultural land, and relief can be obtained under ITA 2007, section 120, that part of the loss can be offset against other income of the claimant either in the tax year the loss was made or the following tax year. On one interpretation of the legislation, the loss cannot be set off against the income of the partner of the person making the loss, but this sits rather oddly in the context of a joint claim for tax credits in which the joint income of the couple is supposed to be aggregated.

Prior to April 2011, losses from furnished holiday lettings were treated the same as trading income and could be offset against total income. However, following changes in the tax system, from April 2011 such losses are treated in the same way as other property income so they can only be offset by carrying forward against profits from the same furniture holiday lettings business in future years.

Updated 9 June 2016