How does the alternative calculation under section 783BH work for property business profits?

Under section 783BH, when partial relief applies, property business profits are calculated by taking the relievable receipts and deducting the property allowance instead of actual expenses. All normal deductible expenses are ignored entirely, and the property allowance replaces them as a flat deduction for the tax year.

Can an individual use the property allowance for one property business and actual expenses for another?

No. Section 783BH requires the alternative calculation method to be applied consistently across all of an individual's relevant property businesses. If partial relief is claimed, the individual cannot mix the property allowance approach with actual expense deductions for different businesses. The same method must be used for every relevant property business.

What happens to the property allowance when an individual has more than one relevant property business?

When an individual has multiple relevant property businesses, section 783BI may require the property allowance to be split between those businesses. Rather than applying the full property allowance to each business separately, the allowance is divided according to the splitting rules, ensuring the total deduction does not exceed the allowance.

When would an individual benefit from the alternative calculation under section 783BH?

An individual benefits when the property allowance exceeds their actual allowable expenses. For example, if relievable receipts are £1,500 and actual expenses are £700 but the property allowance is £1,000, the alternative calculation produces a lower profit of £500 compared to £800 under normal rules, reducing the tax liability.

Income Tax (Trading and Other Income) Act 2005 section 783BH

Partial relief: alternative calculation of property profits

Section 783BH provides an alternative method for calculating property business profits where an individual qualifies for partial relief, replacing the normal expense deductions with the property allowance.

Where partial relief applies, property business profits are calculated using relievable receipts minus the property allowance, rather than by deducting actual expenses
All expenses that would normally be deductible in calculating property business profits are excluded from the calculation
The deductible amount is equal to the individual's property allowance for the tax year, subject to any splitting rules under section 783BI
This method applies across all relevant property businesses, preventing individuals from mixing the property allowance approach with actual expense deductions for different businesses

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