Income Tax (Trading and Other Income) Act 2005 section 797

Alternative calculation of profits: property income

Section 797 sets out how to calculate profits from a UK property business when rent-a-room receipts exceed the rent-a-room limit and the individual elects for the alternative method of calculation rather than full exemption.

• Only the rent-a-room receipts that form part of the UK property business (Part 3 rent-a-room receipts) are brought into account when calculating profits — no associated expenses may be deducted
• A flat deduction is allowed in place of actual expenses, but no capital allowances may be claimed (though any balancing charge that arises must still be brought into account)
• If all of the individual's rent-a-room receipts are property income, the deduction equals the rent-a-room limit (L); if only some receipts are property income, the deduction is the limit multiplied by the proportion that property receipts bear to total rent-a-room receipts (L × P / R), subject to a maximum of P
• In the formula, L is the individual's rent-a-room limit for the tax year, P is the Part 3 rent-a-room receipts, and R is the total of all rent-a-room receipts for the year