A company that lets property does not have a trade. Its rents and letting costs form a UK property business, its mortgage interest is a loan relationship debit, and an increase in the value of its property is not taxed until the property is sold. Three adjustments in the computation take care of all three. Example Lettings Ltd’s profit before tax is £40,000; its Corporation Tax is £2,850.
Rents and letting costs: the property business (box 190)
Open Corporation Tax and the P & L section. Set the Type of the rental income line and of every letting cost — agent’s fees, repairs, insurance, the accountancy fee — to UK property. The lines regroup under property income and property expenses and the net result is shown beneath them: £36,000 − £9,000 = £27,000, which goes to CT600 box 190.
Don’t type the mortgage interest as UK property, even though it is a cost of the letting. The next section explains why. For costs shared with a trade, splitting by percentage, disallowable amounts and property losses, see UK property income and losses.
Mortgage interest: Non Trade Debit (box 260)
A company’s interest on its borrowings is a non-trading loan relationship debit. It is not a cost of the property business, and it is not restricted like an individual landlord’s. It is set against the company’s total profits. While the interest is still sitting in the profit and loss account with nothing else done, a company with no trade sees the warning in the screenshot above: the interest is being treated as a trading expense of a trade the company does not have.
Open the Non Trade Debit section (add it from Add Section if it is not on the menu), click Add Non Trade Debit, name the row and enter the interest under Allowable. The warning clears, the interest leaves the trade, and the £12,000 becomes a non-trading deficit set against the property profit in box 260.
Interest on a director’s loan to the company is treated the same way. More in non-trade loan relationship debits and deficits.
The fair value gain is not taxed
The £25,000 increase in the value of the house is in the accounts profit but is not income for Corporation Tax. The Fair value gains/losses on investment property account starts typed as Not a trade, so it is taken out of the computation automatically. If you posted the gain to another account, set that line’s Type to Not a trade. A fall in value is not deductible either. The deferred tax charge is ignored too, like the current tax charge.
The tax
| Property business profit (box 190) | £27,000 |
| Less non-trading deficit — mortgage interest (box 260) | (£12,000) |
| Profits chargeable | £15,000 |
| Corporation Tax at the 19% small profits rate | £2,850.00 |
Check the result on the CT600 Boxes section: box 190 shows £27,000, box 260 £12,000 and box 300 £15,000. Boxes 145 and 155 (trade turnover and trading profit) stay empty, as they should for a company with no trade.
The computation document has its own UK Property Business page showing the rents, the costs and the profit.
If you control other companies that carry on a business, enter how many on the General section (box 326). The small profits and marginal relief limits are divided between associated companies, so the same £15,000 could be taxed at more than 19%.
Capital allowances
There are no capital allowances on furniture, appliances or fittings in a let dwelling-house — a house or flat someone lives in. Those can only be relieved under replacement of domestic items relief, which gives a deduction when an item is replaced (not for the first one). Tax Optimiser has no separate entry for this relief: a replacement charged to the profit and loss account is deducted once its line is typed UK property, but one capitalised as a fixed asset is not picked up. Allowances on plant used in commercial lets, or on equipment and vans used to run the business, are claimed in the property business — see UK property income and losses. Depreciation is never deductible: enter it as Disallowable on the property line (this does not arise for investment property at fair value).
If the property business makes a loss
A property loss (box 805) is set against the company’s other profits of the same period automatically (box 250), and any balance is carried forward. A non-trading deficit from interest that cannot be used is carried forward too (box 263). See UK property income and losses and non-trade debits and deficits.
Selling a property
When a property is sold, the profit is a chargeable gain worked out from what the company paid for it (plus purchase costs and improvements), not from its value in the accounts. Indexation allowance runs to December 2017 at the latest. Enter the disposal on the Chargeable Gains section; the gain is reported in boxes 210 to 220 and taxed at the company’s normal rate. The accounts profit on the sale, and any fair value gains recognised in earlier years, are not taxed again. See chargeable gains.
Next: Filing the accounts and CT600. Previous: Accounts for a property company.
Frequently asked questions
Where does mortgage interest go on a company’s CT600?
It is a non-trading loan relationship debit. Enter it in the Non Trade Debit section. It is set against total profits in box 260, and any amount that cannot be used is carried forward (box 263).
Why is box 190 different from the rent I received?
Box 190 is the profit of the property business: rents less the costs of letting. It is not the gross rent.
Is a revaluation gain on investment property taxable?
No. An increase in the value of investment property shown in the accounts is not taxed. Tax arises only when the property is sold, as a chargeable gain based on what the company paid.
Can I claim capital allowances on furniture in a buy-to-let flat?
No. Plant and machinery in a dwelling-house does not qualify. Replacement of domestic items relief gives a deduction when you replace an item, but Tax Optimiser has no separate entry for it: a replacement charged to the profit and loss account is deducted when its line is typed UK property.
My company lets to my family. Is it a close investment-holding company?
It may be. A company letting to unconnected tenants is not; letting to connected people can make it one, and it then pays 25% on all its profits. Take advice, and if it is, choose Close investment-holding company as the Company Type.
