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Dividends can only be declared out of a company’s available undistributed profits and even if the bank account is in credit as at the date of withdrawal, it does not necessarily mean that sufficient profit has been made to cover the payment. ‘Profit’ in this instance is defined in the Companies Act 2006 as being ‘accumulated realised profits…less ....accumulated, realised losses’. Therefore, a dividend could be paid in a loss-making period, provided that there are sufficient 'distributable'/retained profits brought forward making an overall profit. Conversely, a dividend cannot be paid if a profit has been made in an accounting period but retained losses brought forward mean that the overall result is a loss.

If a dividend is paid without a sufficient amount of profit to substantiate the payment, this effectively means that the company is trading as insolvent and breaking (company) law. It is a dividend that has been paid that should not have been at the time and as such is 'illegal' (termed ‘unlawful distributions’ in the Companies Act 2006).

Tax implications

Company

If a dividend was declared when there was insufficient retained profit, the dividend is treated as void and the shareholder is treated as not having received a distribution. Where that shareholder knows or should have known that a dividend (or part thereof) is illegal, that shareholder is liable to repay the dividend (or the proportion that exceeds available reserves) to the company if it has already been distributed.

If the dividend is not repaid and the shareholder is also a director or employee, the payment will fall under the ‘loans to participators’ rules. Under these rules, the loan needs to be repaid or written off by the due date of nine months and one day after the year end otherwise a tax charge will be levied on the company. The tax rate is the same as the higher 'dividend tax' rate of 33.75% of the gross amount paid. This amount is payable even if the company is making a loss. Once the loan is repaid, the tax will also be repaid.

Shareholder/director

The 'loans to participator' rules do not apply should the 'loan' be less than £15,000 and the director/shareholder is a full-time working director whose interest in the company is less than 5% of the share capital.

However, any director in receipt of a payment exceeding £10,000 is treated as having received an 'employment related loan'. As it is unlikely that interest would have been paid, this deemed loan will trigger a benefit in kind with a notional interest rate charged (currently 3.75% per annum). P11D forms will need to be completed to account for the ‘beneficial interest’ and the company will be liable to pay secondary Class 1A NIC.

Note that if the loan is formally released by the company, this would be treated as if the loan had been repaid. If the company’s reserves are overdrawn, the directors are obliged to try to recover the funds from the shareholders.

Liquidation implications

In extreme circumstances, the directors of the company may be held personally liable for an 'illegal' distribution as being a breach of their fiduciary duties to the company. In reality, this is only likely to happen if the company enters liquidation or administration.

It is routine for the liquidator or administrator to review the conduct of the directors over the three years prior to insolvency and, if it is found that a dividend has been paid ‘illegally’, then the liquidator or administrator can apply for the director to repay the amount withdrawn. The time limit for recovery of such dividends is six years from the date of declaration or its declared payment date, whichever is later.

Practical point

It is not uncommon for HMRC to allege that dividends have been paid 'illegally' when it sees dividends paid out alongside negative reserves (this is relatively easy for HMRC to pick up, as corporation tax returns include accounts disclosures encoded in iXBRL format).

Although forward planning is always better, ‘last minute’ and even post-death inheritance tax planning may be possible in some cases.

Death and taxes are supposedly inevitable. However, steps to reduce the possible inheritance tax (IHT) burden on death might be considered.

What can be done?

The following is a selection of steps to consider for reducing the tax burden during lifetime, or possibly even post-death.

 • Annual gifts – Transfers of value (e.g., gifts) are generally exempt from IHT up to a maximum of £3,000 per tax year. Any unused annual exemption can be carried forward to the following tax year (but not beyond).

 • Nil-rate band – Every individual is entitled to an IHT threshold (or ‘nil-rate band’). Where chargeable lifetime gifts (and the individual’s death estate) do not exceed the nil-rate band (£325,000 for 2025/26), there is no IHT liability.

 • Gifts at seven-year intervals – If an individual gifts an asset to another individual, the gift is generally a ‘potentially exempt transfer’ (PET), which generally becomes exempt from IHT if the donor survives for at least seven years (whereas if the individual dies within seven years of making a PET, IHT becomes due at the ‘death rate’ (40% for 2025/26) to the extent that the gift’s value exceeds the IHT nil-rate band). Therefore, consideration could be given to making gifts every seven years or more (although most gifts between spouses or civil partners are exempt from IHT in any event).

 • Get the spouse (or civil partner) involved! – IHT savings may be doubled if married couples (or civil partners) each take the above steps; substantial combined IHT savings can be achieved over a relatively short period of time.

 • Where there’s a will – An individual’s will could leave assets on discretionary trusts. Distributions from the will trust within two years of death are treated as made under the will. This may not necessarily save IHT (unless the distribution is to an exempt beneficiary, such as a surviving spouse), but it allows up to two years to consider which beneficiaries should benefit (and to what extent).

 • Too late? Not necessarily! – If there is no time to prepare a new will, consider the planning possibilities available for up to two years after death through a deed of variation of the will (under IHTA 1984, s 142).

 • Over to you! – If the healthier spouse (e.g., the wife) has chargeable assets showing large capital gains, they could be transferred to the other spouse during lifetime to obtain a new base value for capital gains tax (CGT) purposes on his death, and they can return to the donor exempt from IHT under his will (but a note of caution – this approach could be challenged by HMRC as an ‘associated operation’. Whilst death itself is not an associated operation, HMRC’s view in its Inheritance Tax Manual at IHTM14826 is that the making of a will can be). The ailing spouse could also leave his other assets to the surviving spouse, thereby obtaining IHT exemption and a CGT market value uplift. Thereafter, the surviving spouse could consider making PET gifts to family members.

Practical tip

Other IHT reliefs and exemptions (e.g., for ‘normal expenditure out of income’) could also be considered, as appropriate. Where assets are being given away instead of cash, other taxes (e.g., CGT) may need to be addressed. Remember that IHT (and other tax) mitigation should never take precedence over personal circumstances and financial needs.

Early in 2025, HM Revenue and Customs (HMRC) ran a ‘Help for Hustles’ campaign to support people who earn extra income to understand the extent of any tax obligations.

Nice little earners

HMRC has published a guide ‘Take the hassle out of your side hustle’ (taxhelpforhustles.campaign.gov.uk/), which covers five common sources of additional income:

 • Buying or making things to sell;

 • ‘Side gigs’ (e.g., making deliveries);

 • ‘Working for myself doing multiple jobs’ (e.g., dog walking, online tutoring);

 • Content creators or social media influencers; and

 • Property rental (e.g., holiday rentals, letting out a second home).

In addition, HMRC has produced an online checker to help individuals ascertain whether HMRC needs to be informed about additional income (tinyurl.com/HMRC-additional-income).

Trading allowance

For the first four activities listed above, a trading allowance is generally available (ITTOIA 2005, ss 783A-783AR). The trading allowance exempts trading, casual and/or miscellaneous income of up to £1,000 per tax year from income tax. However, an election is available to claim tax relief for actual expenditure instead (e.g., where a tax relievable trading loss would result). If the income exceeds £1,000, individuals can choose between electing to deduct £1,000 from their gross income, or to deduct actual expenditure incurred in arriving at their taxable profit or loss instead. In the case of property rental, different rules normally apply (ITTOIA 2005, ss 783B-783BQ). These are not considered here, but very broadly, if an individual rents out a property (that they do not live in), a property allowance of £1,000 could apply. Furthermore, under the ‘rent-a-room’ scheme, individuals who rent out a room in their home can receive up to £7,500 per tax year without paying tax (ITTOIA 2005, ss 784-802). The trading allowance, property allowance and rent-a-room scheme are all potentially available to an individual for the same tax year, if the relevant conditions are satisfied.

Reporting threshold

Shortly after HMRC’s Help for Hustles campaign was launched, the government announced plans to increase the income tax self-assessment reporting threshold for trading income from £1,000 to £3,000 gross within the current parliament. However, it is important to note that the tax-free threshold is not being increased to £3,000 – merely the reporting threshold. In the meantime, a new reporting tool is being developed to enable individuals to inform HMRC of income for trading between £1,000 and £3,000, instead of having to file a tax return to notify HMRC. If a tax liability arises within those levels, payment will be possible through a simple online service. The aim is to reduce the amount of paperwork, whereas the tax position will otherwise remain unchanged.

Practical tip

HMRC’s press release ‘Love your side hustle? Make it tax official this Valentine’s’ confirms that if someone has earned more than £1,000 from their side hustle in a tax year, they may need to complete a tax return. However, it adds: ‘This only applies to people who are trading or selling services. If someone is simply clearing out their unwanted items and putting them up for sale, they will not need to pay tax.’ Whilst this may be the case for income tax purposes, a capital gains tax liability might arise if someone is selling an item (a ‘chattel’, such as an antique vase) or collection (e.g., chess pieces) for over £6,000 (TCGA 1992, s 262). Professional advice should be sought if in any doubt.

HMRC publish a property rental toolkit which can be used to avoid making common errors when reporting income from property on the Self Assesment tax return. It can be found on the Gov.uk website.

The toolkit was published in 2022 but has recently been updated to take account of the end of the favourable tax regime for furnished holiday lettings, which came to an end on 5 April 2025. However, it should be remembered when reporting income from furnished holiday lettings in the Self Assessment tax return for 2024/25 that the furnished holiday lettings tax rules still apply.

Nature of the toolkit

The toolkit highlights the main risk areas and contains a questionnaire with links to guidance which can be used to check income and expenses are treated correctly for tax purposes and, for example, deducted disallowable items have not been deducted when calculating their rental profit.

Key risk areas

Record-keeping

Poorly kept records may result in receipts other than rents being overlooked, expenditure or reliefs being wrongly claimed or deductions missed or property disposals being overlooked.

Property income receipts

All income from land, other than capital receipts, should be taken into account when computing the profit for the property rental business, including casual or one-off lettings. For 2024/25 and earlier years, profits from furnished holiday lettings are calculated separately. From 2025/26 onwards, they are included with other rental receipts.

Deductions and expenses

Expenses can only be deducted in computing rental profits if they are incurred wholly and exclusively for the purposes of the business. Problems may arise in relation to dual purpose expenditure which has both a business and private element and also in distinguishing between revenue and capital expenditure.

Reliefs and allowances

Rent-a-room relief can only be claimed by those letting furnished accommodation in their own home.

Plant and machinery capital allowances can be claimed by landlords of non-residential property and, for 2024/25 and earlier tax years, for furnished holiday lettings. They are not available in respect of residential lets.

The property allowance exempts rental income of less than £1,000 from tax. It can also be deducted instead of actual expenses when calculating rental profit. It is not available in some cases, for example where rent is paid by a personal or family company to a director.

General

There are particular issues in relation to property that will affect the completion of the property pages of the Self Assessment tax return, such as the use of losses, which must be carried forward and set against profits of the same property business.

A look at some important tax considerations of incorporating a property portfolio.

For owners of a residential property business, operating the most efficient structure will be a key decision in helping them to manage risk, grow their portfolio and minimise their tax exposure.

Basic position

Property investment businesses lend themselves to several business structures, with owners having the freedom to operate their portfolios as individuals, or with other people as a jointly let business (or more rarely as a partnership), or through a limited company or a hybrid of these models as the business has grown and developed.

The diverse range of size and scale of property businesses means that there is not a ‘one-sizefits-all’ solution for every taxpayer. Indeed, incorporating a property portfolio will result in different tax implications for each individual, so bespoke planning is needed to ensure there are no unforeseen consequences.

One of the main drivers behind incorporation is to improve tax efficiency. Where the business is owned outside a company structure, and an individual’s total income exceeds £100,000, rental profits can be subject to income tax rates of up to 60%, whilst a company’s highest marginal rate of corporation tax is 26.5%. At the other end of the scale, a basic rate taxpayer would pay 20% income tax, with the lowest rate of corporation tax being 19%.

Other than where profits are fully covered by the personal allowance, corporation tax rates are lower than for individuals, which makes incorporation an attractive proposition. In addition, company ownership allows for tax-efficient profit extraction via salary and dividends, pension payments as a business expense and limited liability to protect the property portfolio against personal claims.

Profit extraction

Based on the headline tax rates, the benefits of incorporation are clear to see. However, this is not the end of the tax tail. When deciding whether incorporation would be beneficial overall, we also need to consider how the company will use the rental profits, along with the applicable capital taxes.

For example, if post-tax profits are to be paid out to the shareholders as dividends, this will incur tax charges on them as individuals at their marginal rate of tax. This will therefore erode the benefits of a company being taxed at lower rates.

Example: Company and personal tax

Sam is the 100% shareholder of a company which owns a single residential rental property that has no mortgage debt. The company pays tax at the lower profits rate of 19%, and all post-tax profits are paid out as dividends.

The effective rate of tax on the rental profits for a basic, higher-rate and additional-rate taxpayer are as follows:

Profits CT19% Profits Div allce Div tax rate Div tax payable Total tax Effective rate

10,000 (1,900) 8,100    (500)      8.75%         665          2,565.       25.65%

10,000 (1,900) 8,100.   (500)     33.75%.      2,565.         4,465        44.65%

10,000 (1,900) 8,100    (500).    39.35%       2,991          4,891.       48.91%

As can be seen, where the company’s profits are paid out in full, the taxpayer will suffer a higher rate of tax than if they had owned the property personally.

Interest relief

The example above only shows a basic analysis of the tax effects, and in the real world there are likely to be other factors to take into consideration, which will affect the total tax payable.

For example, if Sam had a mortgage debt on their property, they would not be able to claim tax relief for finance costs as a business expense. Instead, individuals receive relief via a reduction in their tax liability for the year equivalent to the total finance costs multiplied by the basic rate of income tax.

A company, on the other hand, can generally deduct all finance costs in full as a non-trading loan relationship debit and so is not subject to any restrictions on deductibility.

Therefore, for higher rate and additional rate taxpayers, where finance costs are incurred, the effective tax charge on rental profits is higher when the properties are held personally. Additionally, as companies have lower tax rates, post-tax profits can be retained and used to speed up the repayment of debts or reinvest into other property.

Capital taxes on incorporation

If incorporation is decided to be beneficial from an income tax perspective, consideration will turn to how the properties are transferred. Unfortunately, it is not as simple as just channelling the income and expenses through the company without moving the underlying assets. Any attempt to do this is likely to be caught by the ‘settlements’ anti-avoidance legislation and will be ineffective for tax purposes.

If a property business is just starting out, the process is simpler as the properties can be purchased straight away by the company. However, if there is an existing personal portfolio, capital gains tax will need to be considered.

Capital gains tax

The sale of a property to the company will need to be made at market value. As a startup company will not have any proceeds with which to pay the vendor, the disposal proceeds will likely remain outstanding on a loan account, which can then be withdrawn by the vendor tax-free as and when funds allow.

If a taxable gain is made on the disposal, this will be taxable at either 18% or 24%, depending on the individual vendor’s total income for the tax year. This will result in a ‘dry’ tax charge, which must be reported and paid to HMRC within 60 days of completion, so it must be planned for.

Any attempt to sell the properties for less than market value will clearly be a sale at undervalue and so caught by TCGA 1992, s 17, which will result in market value being substituted as deemed proceeds.

In certain circumstances, where consideration for a disposal is received in instalments, an application can be made to HMRC (under TCGA 1992, s 280) for the tax to be paid over a period of up to ten years. However, this is by no means certain to be granted by HMRC and will be subject to stringent conditions, if allowed.

Incorporation relief

As an alternative to selling the properties and leaving the proceeds outstanding, an individual may instead choose to receive their disposal consideration in the form of shares, with incorporation relief under TCGA 1992, s 162 generally being available to defer capital gains.

Incorporation relief is an automatic relief which does not have to be claimed if all the following qualifying conditions are met, although it can be disclaimed under TCGA 1992, s 162A:

 • All business assets, except cash, are transferred to the company.

 • Consideration is received wholly or partly in exchange for shares.

 • The business is transferred as a going concern.

For a property portfolio to qualify for incorporation relief, the letting activities must be enough to constitute a business. In Ramsay v Revenue and Customs [2013] UKUT 226 (TCC), Mrs Ramsay was found to have spent 20 hours or more on letting activities each week, which was considered enough for incorporation relief to be available.

Where incorporation relief is used, any gains are rolled over against the base cost of the shares, with the base cost of the properties in the company being equal to their market value at the date of transfer.

For an individual adding to or disposing of properties from their portfolio, this effective rebasing can prove very useful as on a disposal of a property by the company, the chargeable gain will be lower than if the property had been sold personally.

Stamp duty land tax

On incorporation, a company is deemed to pay market value for the properties, irrespective of actual consideration paid (FA 2003, s 53). This will mean where properties are transferred to a company either via a sale with the proceeds left outstanding on a director’s loan account or via incorporation relief, a stamp duty land tax (SDLT) charge will arise (NB different taxes apply in Scotland and Wales).

However, no SDLT charge is payable where the market value of a property transferred is below £40,000, or where the partnership is incorporated (although the anti-avoidance provisions in FA 2003, s 75A must be considered). Where SDLT is chargeable, each property will be subject to an additional SDLT surcharge of 5%, which will further increase the costs of incorporation.

Practical tip

When considering incorporation, ensure that both the long and short-term tax implications are considered. Whereas there may be income tax savings on the rental profits, where there is an existing portfolio, capital taxes may need to be paid to establish the new structure.

Personal and family companies often make loans to directors. However, there can be tax and National Insurance implications of doing so. Where the loan remains outstanding nine months and one day after the end of the accounting period in which it is made, a tax charge arises on the company. Tax charges may also arise if the loan is written off.

HMRC have recently written to individuals who between 6 April 2019 and 5 April 2023 received a director’s loan that has been released or written off and who may not have declared the amount written off as income on their Self Assessment tax return. Individuals affected can tell HMRC about the loan using their online disclosure service (see www.gov.uk/guidance/tell-hmrc-about-underpaid-tax-from-previous-years). An individual’s agent can make the disclosure on their behalf.

Where a loan was written off after 5 April 2023 and not declared on the Self Assessment tax return, there is no need to use the disclosure service; instead, the tax return can be amended.

Tax consequences

Where a director’s loan is written off, there are implications for the company and the director. If the loan is one in respect of which the company has paid tax (section 455 tax) because the loan was outstanding nine months and one day after the end of the accounting period in which the loan was made, the write off will be treated like a repayment as far as the company is concerned. This means that the company is able to apply for a repayment of the associated section 455 tax. The repayment can be claimed nine months and one day after the end of the accounting period in which the loan was written off. This can be done online (www.gov.uk/guidance/reclaim-tax-paid-by-close-companies-on-loans-to-participators-l2p). The company must declare the loan write-off on the supplementary pages of its company tax return.

As far as the director is concerned, the amount written off is treated as a distribution and taxed at the dividend tax rates. The director should declare the amount written off on their Self Assessment tax return.

Where the director is also an employee there is also a potential charge under the employment income rules. However, the dividend treatment outlined above takes precedence so there is no double charge.

National Insurance implications

The National Insurance position is more complex. Where the loan is derived from an employment, Class 1 National Insurance (employer and employee) will be due as the write-off is treated as earnings for National Insurance purposes rather than as a dividend (on which no National Insurance is due). HMRC will generally assume this to be the case.

An alternative scenario is that the write-off is shareholders’ funds rather than earnings and is not related to the director’s work for the company. If this is accepted to be the case, there will be no National Insurance to pay. To provide weight to this argument, the write-off should be approved at a general meeting of the shareholders or by a written resolution. However, it should be noted that HMRC may issue a successful challenge.

Alternative approach

Rather than writing off the loan, if the company has sufficient retained profits it would be better to pay the director a dividend which could then be used to clear the loan. The income tax position will be the same, but as there is no National Insurance liability on dividends, the National Insurance issue is avoided.

The tax exemption for trivial benefits is a useful one as it allows employers to provide certain low-cost benefits to employees without an associated tax or National Insurance liability, such as Christmas or birthday gifts. However, not all benefits qualify, and there are some pitfalls to be wary of.

What is a ‘trivial benefit’?

To qualify as a trivial benefit, the following conditions must be met.

• The benefit is not cash or a cash voucher. A cash voucher is one that can be exchanged for cash.
• The benefit cost is not more than £50.
• The benefit is not made available under a salary sacrifice arrangement or pursuant to a contractual entitlement.
• The benefit is not provided in recognition of particular services performed by the employee in the course of their employment or in anticipation of such services.

Where the employer is a close company (as is the case for most personal and family companies), the total value of tax-free trivial benefits provided in the tax year to a person who is a director or officeholder of that company or to a member of their family or household is capped at £300 a year.

Calculating the benefit cost

A benefit can only be a trivial benefit if the benefit cost does not exceed £50. The benefit cost will normally be the cost of providing the benefit. However, where the benefit is made available to more than one employee and it is impracticable to calculate the cost of providing it to each individual, the benefit cost is the average cost of providing the benefit. This is simply the total cost of providing the benefit divided by the number of people to whom it is provided.

Pitfall 1 – Rewarding service

While providing a bunch of flowers or a bottle of wine as a thank you when an employee works late might be a nice gesture, it is not one that falls within the ambit of the trivial benefits exemption as the gift is made to reward services provided by the employee. Likewise, if you provide an employee with a taxi home if they work late and the exemption for late night taxis is not in point, the trivial benefits exemption will not apply even if the fare is less than £50 as again the taxi home is provided as a ‘reward’ for working late.

Pitfall 2 – Salary sacrifice arrangements

The trivial benefits exemption cannot be used in conjunction with salary sacrifice arrangements.. If the employee gives up cash salary in return for a non-cash benefit, the trivial benefits exemption will not apply, even if the cost of the benefit received in exchange is not more than £50.

Pitfall 3 – Contractual obligations

The exemption does not apply to benefits to which the employee is contractually entitled. This applies not only to those explicitly stated in the employment contract, but also where there is an implied contractual arrangement. HMRC illustrated this with the somewhat extreme example of cream cakes being provided every Friday, which they argued created an implied obligation and, as such, the provision of the cakes would fall outside the scope of the trivial benefits exemption.

Pitfall 4 – Recurring benefits

Problems can arise if an app, season ticket or gift card is used to provide the employee with regular benefits. Where this is the case, the benefit cost is the annual value of providing the benefit, rather than the cost of each individual benefit. Consequently, where the annual cost is more than £50, the trivial benefits exemption will not apply, even if the cost of each individual benefit does not exceed the limit. For example, if an employee is given an app which allows them to book a monthly beauty treatment at a cost of £40, the trivial benefits exemption will not apply as, at £480, the total cost of using the app during the tax year is more

Tax breaks available to landlords investing in commercial properties.

Would-be landlords have a number of decisions to make. Not only do they need to decide whether to operate as an unincorporated property business or a property company, but they also need to decide whether to invest in residential or commercial property. When it comes to the tax considerations, not all property is equal. This article looks at ‘pros’ and ‘cons’ of residential and commercial lettings.

However, before doing so, there are some points to note. Firstly, the tax implications will also depend on whether the landlord is a sole trader or whether the business is operated through a company. Secondly, for 2025/26 and later tax years, furnished holiday lettings (FHLs) are treated in the same way for tax purposes as other residential lettings. The beneficial regime that previously applied to FHLs came to an end on 5 April 2025 and is not considered here.

Relief for interest and finance costs

The way in which relief is given for interest and finance costs depends on whether the landlord is operating as a sole trader or a company, and also on the type of property. Unincorporated landlords are not able to deduct interest and finance costs relating to residential properties in calculating their taxable profits. Instead, relief is given as a tax reduction equal to 20% of the lower of:

 • interest and finance costs;

 • property business profits; and

 • landlord’s adjusted net income.

The tax reduction cannot create a tax repayment and if the landlord is unable to relieve the interest and finance costs in full in the year in which they are incurred, the unused amount is carried forward for relief in future tax years.

This way of giving relief for interest and finance costs incurred by unincorporated landlords applies equally to FHLs from 6 April 2025 onwards. Previously, unincorporated landlords were able to deduct interest and finance costs in relation to FHLs in calculating their taxable rental profits. However, FHLs now are no different from other residential lets from a tax perspective.

By contrast, an unincorporated landlord can deduct interest and finance costs in full in calculating their taxable profit where these relate to a commercial property. This means that where the landlord pays tax at the higher or additional rate, they will receive tax relief at that rate for interest and finance costs incurred in respect of commercial lettings, whereas relief for interest and finance costs in relation to residential lets is capped at 20%. A further benefit of commercial lets is that the associated interest and finance costs can be deducted in full in the year in which they are incurred, even if this creates a loss. The loss can be carried forward and set against future profits of the same property rental business.

Where a landlord’s unincorporated property business comprises both residential and commercial lets or mixed-use properties, it is important to identify the type of letting to which the interest and finance costs relate so relief can be given in the correct manner.

The interest rate restriction for residential lettings only applies to unincorporated businesses. Where the property rental business is operated through a company, relief for interest and finance costs in respect of both residential and commercial lettings is given by way of deduction, securing relief at the rate at which the company pays corporation tax, which depending on the level of its profits is between 19% and 25%.

Capital gains

For unincorporated landlords from 30 October 2024 onwards, capital gains arising on the disposal of residential and commercial properties are now taxed at the same rate – 18% where income and gains fall within the basic rate band and 24% once the basic rate band has been used up. However, residential property gains must be reported to HMRC within 60 days of the date of the disposal and the associated capital gains tax (CGT) paid within the same time frame.

By contrast, the CGT payable on a chargeable gain on a commercial property does not need to be paid until 31 January after the end of the tax year in which the disposal occurred. This provides the landlord with a cashflow benefit and the opportunity to invest the funds which will be used to pay the tax in the interim.

For 2024/25 and earlier tax years, landlords disposing of FHLs were able to benefit from a range of CGT relief. However, following the end of the FHL regime, these are no longer available (other than under transitional provisions where the FHL business ceased prior to 6 April 2025). Where the business is operated through a company, gains arising on disposal of residential and commercial properties are charged to corporation tax and payable on the normal due date of nine months and one day after the end of the tax year.

SDLT rates

Stamp duty land tax (SDLT) is payable on the purchase of a property in England and Northern Ireland (NB land and building transaction tax applies in Scotland, and land transaction tax applies in Wales, but this article focuses on SDLT rates). The rates depend on whether the property is residential or non-residential. The non-residential rates also apply to mixed-use properties. Where the purchaser is an individual, a supplement of 5% applies to second and subsequent residential properties unless the purchaser is exchanging their main residence. The rates applying from 1 April 2025 onwards are shown in the tables below.

Residential rates - table

Non-residential rates - table

On a £500,000 property, if an individual already has a residential property, the SDLT hit will be £40,500. By contrast, SDLT of £14,500 is payable on the purchase of a commercial property for £500,000. Consequently, there is an SDLT saving of £26,000 from opting for a commercial property.

Where the business is run through a company, the residential property supplement does not apply. However, as the non-residential rates are lower, there are still savings to be had from opting for a commercial property.

Annual tax on enveloped dwellings

It can be expensive for companies to own residential properties if they are not excluded from the scope of the annual tax on enveloped dwellings (ATED).

The ATED charge does not apply if the property is let to a third party on a commercial basis, is being developed by a property developer or is held as stock for the sole purpose of resale. If the property is worth £500,000 or more and is not excluded, the ATED will apply. For 2025/26, the charge ranges from £4,450 on properties valued at between £500,000 and £1m to £292,350 on properties valued at £20m and above.

The charge does not apply to commercial properties or to residential properties owned by an individual.

Capital allowances

Plant and machinery capital allowances are not available in respect of residential lettings, irrespective of whether the landlord is an individual or a company. However, where the property is a commercial property, plant and machinery capital allowances are available. Landlords can secure full relief in the year of purchase by claiming annual investment allowance where the £1m annual limit has not been used up.

Corporate landlords can benefit from full expensing on new and unused assets that would otherwise qualify for main rate writing down allowances without limit – useful if the AIA limit has been reached. Commercial properties can also benefit from capital allowances on integral features and from structures and buildings allowances.

Practical tip

Unincorporated landlords could consider investing in commercial property rather than residential property to take advantage of the tax break on offer.

The benefits of the employment allowance and an outline of the eligibility conditions.

The employment allowance is a National Insurance allowance which eligible employers can set against their secondary Class 1 National Insurance contributions (NICs) liability. The allowance is set at £10,500 for 2025/26. However, it is capped at the amount of the employer’s secondary Class 1 NICs liability for the year, where this is lower.

The secondary Class 1 NICs landscape changed quite significantly from 6 April 2025. From that date, the secondary Class 1 NICs rate rose to 15% (from 13.8%) and the secondary threshold fell to £5,000 a year (£96 per week, £417 per month) from £9,100 a year (£175 per week, £758 per month).

To partially mitigate the impact of these changes, the employment allowance was increased from £5,000 to £10,500. Its availability was also widened to enable employers with a Class 1 NICs bill of £100,000 or more to qualify – previously, employers with a Class 1 NICs bill of £100,000 or more in the previous tax year were not eligible to claim the allowance.

Nature of the employment allowance

Employers in receipt of the employment allowance are able to set it against their secondary Class 1 NICs liability for the year. This means that they will not pay any secondary Class 1 NICs liability until the allowance has been used up, providing a welcome cashflow boost at the start of the tax year. For smaller employers whose secondary Class 1 NICs liability for 2025/26 is less than £10,500, this means that if they are eligible for the allowance, they will not pay any secondary Class 1 NICs for the tax year.

The employment allowance can only be set against the secondary Class 1 NICs liability for the year, and where this is less than £10,500, the allowance is capped at the liability for the year – it is not possible to set the amount against other employer liabilities, such as Class 1A or Class 1B NICs, or to carry the unused amount forward to the next tax year.

Example 1: A small business

A Ltd is a family company with two employees who are both paid £1,040 a month. For 2025/26, the associated secondary Class 1 NICs liability on a salary of £1,040 a month is £93.45 – a total monthly liability of £186.90. As the annual secondary Class 1 NICs liability of A Ltd for 2025/26 is only £2,242.80 (i.e., 12 x £186.90), this is completely offset by the employment allowance for the year so that A Ltd pays no secondary Class 1 NICs.

Their employment allowance for the year is capped at their annual secondary Class 1 NICs liability of £2,242.80.

Example 2: Employment allowance used in full

B Ltd has a number of employees and an annual secondary Class 1 NICs liability of £2,450 a month in 2024/25. Its liability is completely offset by the employment allowance for the first four months of the tax year so that it pays no secondary Class 1 NICs over to HMRC for those months. This uses up £9,800 of the employment allowance (i.e., 4 x £2,450). The remaining £700 of the employment allowance is set against B Ltd’s NICs liability for month 5, reducing it to £1,750 (i.e., £2,450 - £700).

As the employment allowance has now been used up, B Ltd must pay the full amount of their secondary Class 1 NICs liability of £2,450 a month over to HMRC for the remaining months (months 6 to 12) of the 2025/26 tax year.

Excluded employers

The employment allowance is only available to eligible employers. To qualify, a person must be the secondary contributor (which will normally be the employer) in relation to the payment of earnings to or for the benefit of one or more employed earners and, in consequence, must be liable to pay secondary Class 1 NICs liability, and must not be an excluded employer.

The main category of excluded employers is companies where the sole employee in respect of whom secondary Class 1 NICs are payable is also a director. Most personal companies will fall within this exclusion and will not be able to benefit from the employment allowance.

A business or public body which does 50% or more of its work for a public body (such as the NHS) is also excluded from claiming the employment allowance. Previously, employers whose Class 1 NICs liability was more than £100,000 in the previous tax year were not able to benefit from the employment allowance. However, this restriction has been lifted from 2025/26.

Multiple payrolls

An employer is only able to claim one employment allowance, regardless of how many payrolls they operate – the allowance is available per employer, rather than per payroll.

Consequently, there is no benefit in operating multiple payrolls in an attempt to reduce the secondary Class 1 NICs liability for the year.

Groups of companies

In a group of companies with more than one employer, the group as a whole is only entitled to one employment allowance. Each individual employer within the group is unable to benefit from their own employment allowance, and the group as a whole must decide which employer will claim the allowance.

To ensure that maximum benefit is received, it should be claimed by an employer with a secondary Class 1 NICs liability of at least £10,500 a year. If none of the employers have a secondary liability at this level, the allowance should ideally be claimed by the employer with the highest secondary Class 1 NICs bill.

Personal companies

Most personal companies do not qualify for the employment allowance as the same person is both the sole employee and the director. Profits from a personal company have to be extracted to be used by the director personally, and for 2025/26, the optimum salary where the director’s personal allowance is available in full is one equal to the personal allowance for the year of £12,570.

As this is equal to the primary threshold, the director will not pay any primary Class 1 NICs on a salary at that level. For 2025/26, the secondary threshold is set at £5,000. Consequently, as the employment allowance is not available, the company will pay secondary Class 1 NICs of £1,135.50 in 2025/26 on a salary of £12,570.

For a year to be a qualifying year for state pension purposes, an individual must have earnings of at least equal to 52 times the weekly lower earnings limit, which for 2025/26 is £6,500. As this is in excess of the secondary threshold, it is not possible for a director of a personal company to secure a qualifying year for 2025/26 without paying some secondary contributions. On a salary of £6,500, the associated secondary Class 1 NICs bill is £225.

To bring a personal company within the scope of the employment allowance, there are a couple of options. The first is for the sole employee not to be a director. By resigning as the director and appointing a spouse or family member as a director instead, the company will qualify for the employment allowance as long as secondary contributions are due on earnings paid to the sole employee.

The second way to qualify for the employment allowance is to take on another employee in respect of whom secondary contributions are payable. The reduction in the secondary threshold means that the amount that a second employee has to be paid to tick this box is now less than in the past. There is no requirement that secondary contributions are payable throughout the tax year, only that a secondary Class 1 NICs liability arises on the earnings of more than one employee. This can be achieved by paying a second employee more than £96 for at least one week in the tax year.

Claiming the allowance

The employment allowance is not given automatically and must be claimed. This can be done through the payroll software in the ‘employer payment summary’ (EPS). A claim can also be made via HMRC’s Basic PAYE Tools package. The earlier in the tax year the claim is made, the sooner the employer can benefit from it.

Employers who were eligible for the allowance in previous tax years and who did not make a claim may be able to make a claim for the four previous tax years.

Practical tip

Personal companies where the sole employee is also the director could look at taking on another employee paid more than £96 for at least one week in the tax year to bring them within the scope of the employment allowance.

In a partnership, the activities are considered to be conducted by the individual partners rather than the partnership itself, as a partnership is not a separate legal entity. Consequently, the partnership does not pay tax or National Insurance contributions (NIC). Instead, each partner pays tax separately on their allocated share of profits or losses, similar to a sole trader. If one partner is a company, it is taxed on its share of profits and capital gains according to corporation tax rules.

Sharing profits and losses

The Partnership Act 1890 states that profits and losses are to be divided equally between the number of partners unless determined in accordance with the partnership's profit sharing ratio (PSR) arrangement during that period as per the partnership agreement (if there is one).

Partnerships are not bound by a legal requirement to have a written agreement; indeed, many operate without one. However, this lack of agreement can lead to disputes and potential legal issues. One immediate issue is that partner contributions and involvement may not be equal and, therefore, do not merit an equal share of the profits.

All partnerships with a written agreement can agree to share profits on any basis they choose, varying the ratio year on year as they decide as long as it's fixed at the end of the year. The only proviso about PSRs is that it cannot be altered retrospectively which means that it is not possible to change the PSR after the year end to secure a more favourable tax-efficient outcome. However, it is possible to overcome this restriction with a flexible PSR written into the agreement e.g. including such words as ‘as the partners shall from time to time decide’.

Why change the PSR?

There may be many reasons to change a PSR but, whatever the reason, this affects all taxes payable by each partner following the amendment. The impact of any such change is that the profit or loss needs to be time apportioned as at the date of change prior to allocation.

Disputed profit share allocation

There may be instances where individual partners disagree with the allocation of profits as declared in the partnership statement (or have  not received the amount shown) and would not want to be taxed on income not received.

In the First-tier Tribunal cases, Morgan v HMRC and Self v HMRC [2009], there was a dispute about profit allocation where the taxpayers had received payments on their (involuntary) departure from the partnership of which they had been members. The partnership considered the payments to have been an allocation of profits and showed them as such on the partnership tax return. However, the taxpayers disagreed with the designation and appealed against HMRC's assessment. The judge agreed that the assessments were valid and, following the cases, HMRC inserted a new section in the Taxes Management Act 1970 and updated its guidance in the Enquiry Manual EM7522, stating that 'A partner’s personal return must include the amount that the partnership statement says is their share of the partnership profit or loss'. As such, the basic rule is that a partnership return is conclusive for tax purposes not only as to the amount of a partner's share but also as to whether a partner received any share at all.

Declaration on tax return

If there is genuine disagreement that cannot be resolved before the tax return submission deadline, HMRC suggests that the partner should enter the amount of partnership profit share they consider to be correct, and make an entry in the 'Additional information/white space' notes section of the return to show the profits as allocated in the partnership statement, a deduction (or addition) of the disputed amount and an explanation about why the allocated profit amount shown on the partnership statement is wrong.

Practical tip

If the white space is completed as per the previous paragraph, HMRC has confirmed that it will not regard the personal return as incorrect if profits, as declared by the individual, were a ‘net’ amount after deducting the disputed amount.

There is a demand for garage space, particularly from tradespeople who want somewhere to store their tools safely rather than leaving them in their van overnight and vulnerable to theft. If you have a garage that you are not using, you could potentially earn money from renting it out. Even better, you may be able to enjoy rental income of up to £1,000 a year tax-free.

The property allowance

The property allowance is a tax allowance which enables a landlord to earn rental income of £1,000 a year tax-free (in addition to any tax-free rental income under the Rent-a-Room scheme). An individual is only allowed one property allowance regardless of how many lettings they have. The allowance is available in addition to the personal allowance and, where relevant, the trading allowance.

Where rental income for the tax year is less than £1,000, the income is tax-free and does not need to be reported to HMRC. Where rental income exceeds £1,000, the landlord can choose either to work out their rental profit in the usual way by deducting allowable expenses from the rental income or deduct the property allowance instead. This will be beneficial where allowable expenses are less than £1,000. The rental profit is taxable and must be reported to HMRC on the landlord’s Self Assessment tax return.

Example 1

Lucy has a garage that she does not use. She rents it out for £100 a month. Her rental income is £1,200 per year. Her allowable expenses are £100. She has no other rental property.

It is beneficial for Lucy to take advantage of the property allowance and deduct this from her rental income, which will give her a rental profit of £200 on which tax will be payable at her marginal rate of tax, assuming her personal allowance has already been used. Had she instead deducted her actual expenses, her taxable rental profit would have been £1,100.

Example 2

James and Hannah have recently purchased their first home. To help make ends meet, they decide to rent out their garage for £120 a month (£1,440 a year). The income is split equally and they each receive £720 a year. As this is less than the property allowance, they can enjoy the income tax-free and do not need to report it to HMRC.

Although the end of the tax regime for furnished holiday lettings relieved landlords of the need to keep track of the number of days for which the holiday let was available for letting and actually let, some day counting is still needed for business rate purposes. Depending on the lettings profile, the landlord may be eligible for business rates rather than council tax, and this may be very advantageous. The tests that need to be met depend on whether the property is in England or in Wales. Different rules apply in Scotland and Northern Ireland.

Holiday lets in England

A holiday let is treated as a self-catering property and valued for business rates if the property was available to let for at least 140 nights and was actually let for at least 70 nights in the year.

If the rateable value of the property is less than £15,000, the landlord may be able to benefit from small business rate relief.

For holiday lets, the rateable value is determined by the number of bedrooms. If the rateable value is less than £12,000, the landlord does not have to pay any business rates as long as the holiday let is their only business property. Where the rateable value is between £12,000 and £15,000, the rate of relief reduces gradually from 100% to zero.

For 2025/26, the small business multiplier is 49.9p per pound of rateable value outside London and 51.9p in London.

If the landlord is currently paying council tax, they will need to complete the relevant Valuation Office Agency form to apply for business rates. Landlords wishing to claim small business rate relief should write to their local council; the relief is not given automatically.

Example 1

A landlord lets a holiday cottage on the Devon coast. The cottage is available to let for more than 140 nights in the tax year and actually let for more than 70 nights. The rateable value is £9,000. The property is within business rates and, as 100% relief applies, there are no business rates to pay.

Example 2

A landlord has a holiday let on the Suffolk coast which is available for letting all year round and actually let for more than 70 nights each year. The rateable value is £13,500.

The landlord is within business rates. Before relief, the business rates for 2025/26 are £6,736.50. The landlord benefits from 50% relief so pays £3,368.25.

Second properties

If a landlord acquires a second business property, they will continue getting any relief on their main property for 12 months. Thereafter, they can continue to benefit from small business rate relief if none of the other properties have a rateable value of more than £2,899 and the total rateable value of all business properties is less than £20,000 (£28,000 in London).

Properties in Wales

Harsher tests apply to fall within business rates in Wales. The property must be available for letting for at least 252 nights and actually let for at least 182 nights.

Small business rate relief is available where the rateable value is less than £12,000. However, the rules are less generous than in England. Full relief (100%) is only available where the rateable value is £6,000 or less. The relief reduces from 100% to zero as the rateable value increases from £6,000 to £12,000.

Small business rate relief is limited to two properties in each local authority. In Wales, the relief is given automatically.

From 6 April 2025, furnished holiday lets are treated in the same way as other lets for tax purposes. Landlords letting both holiday accommodation and other properties (whether residential or commercial) calculate the profit for their property business as a whole, taking into account the income and expenses from all properties. It is only the total income and total expenses that are relevant – there is no need to calculate the profit and loss for each property or each type of property separately for tax purposes (although the landlord may wish to do so in order to monitor the performance of each property).

As the profits are calculated at business level rather than property level, if one property makes a loss, this is automatically offset against profits made on other properties. However, if the property business as a whole makes a loss, that loss can be carried forward and offset against future profits of the same property business.

Losses made in 2024/25 and earlier tax years

For 2024/25 and earlier tax years, different rules applied to properties which were classified as furnished holiday lettings for tax purposes. The profits for furnished holiday lettings were calculated separately from other lettings, and where a loss was made on the furnished holiday lets, the loss could only be carried forward and set against future profits from furnished holiday lettings; the loss could not be set against profits from other lettings. Likewise, if a landlord made a loss on other lettings, the loss could not be set against any profits from furnished holiday lets.

This has all changed. From 6 April 2025 onwards, all properties owned by a landlord in the same capacity go into the same pot. Losses bought forward, regardless of their origin, can be set against profits from the amalgamated property business.

Example

A landlord lets two residential properties, a commercial property and two holiday lets. For 2024/25 and earlier tax years, the profit or loss on the holiday lets was calculated separately from that on the other properties. On 6 April 2025, the furnished holiday lets had unrelieved losses of £10,000.

From 6 April 2025, all five properties are treated in the same way and the profit or loss is calculated for the property business as a whole. For 2025/26, the property business makes a profit of £32,000. The unrelieved losses of £10,000 brought forward from the furnished holiday lets can be set against the profit, reducing the taxable profit for 2025/26 to £22,000.

It is easy to make mistakes when completing your VAT return. However, where mistakes are made, it is important to correct them. This is fairly straightforward to do.

Four-year window

You can correct errors in your next VAT return if the error was made in the preceding four years and it is either less than £10,000 or between £10,000 and £50,000 but less than 1% of your total sales value.

Errors that are more than £50,000 or more than £10,000 and greater than 1% of the total sales value must be notified to HMRC separately, as must deliberate errors. This can be done using form VAT652 or online. HMRC have a tool which you can use to see which method is appropriate for you (see www.gov.uk/guidance/check-if-you-need-to-report-errors-in-your-vat-return).

The net value of the error is the additional tax due to HMRC less any tax that is due to you from HMRC.

Adjusting your next VAT return

If your error falls within the limits permitted for correction in your next VAT return, the action that you need to take depends on whether, as a result of the error, you owe VAT to HMRC or HMRC owe you VAT. Where you owe VAT to HMRC, you need to add the amount of the error to the box 1 figure. Where HMRC owe VAT to you, the error is added to the box 4 figure. You will also need to keep details of the error, including how it arose, when it was discovered and the amount of VAT involved. You will also need to correct your VAT account.

Interest and penalties

If the error results in VAT being due to HMRC, interest and penalties may be charged. Where VAT is paid late, interest is charged from the date on which it was due to the date on which it was paid. If the payment is made more than 15 days late, late payment penalties will also apply.

If the error results in a VAT repayment, repayment interest may be paid.

In an ideal world, everyone’s estate would be distributed according to their wishes. However, where someone dies without making a will, who gets what is determined by the intestacy provisions. The way in which the estate is distributed depends on the value of the estate and whether the deceased is married or in a civil partnership and whether they have children. The rules explained below apply in England and Wales; different rules apply in Scotland and Northern Ireland.

Jointly owned home

In England there are two ways in which property can be jointly owned – as joint tenants and as tenants in common. Where property is jointly owned as joint tenants, the owners together own the whole property. If one of them dies, the property automatically passes to the surviving joint tenant. However, the deceased’s share forms part of their estate for inheritance tax purposes.

By contrast, where property is owned as tenants in common, each person owns a defined share. Their share passes in accordance with their will or under the intestacy provisions rather than going to the other tenant(s) in common.

Spouse or civil partner but no children

A spouse or civil partner of a person who died intestate can inherit even if they were separated at the date of death (but not if they were divorced). However, unmarried partners cannot inherit.

If the deceased has a living spouse or civil partner, they inherit the whole estate.

To inherit, the surviving spouse or civil partner must survive the deceased by at least 28 days.

Spouse or civil partner and at least one child

Where the deceased has a living spouse or civil partner and at least one child, the estate is split between the spouse/civil partner and the children.

The spouse/civil partner inherits the deceased’s personal possessions, the first £322,000 of their estate and 50% of the remainder. The remainder is divided equally between the children. In the event that the deceased’s estate is valued at less than £322,000, the surviving spouse/civil partner inherits the whole estate.

Where children under the age of 18 inherit, their inheritance is held in trust until they reach the age of 18.

At least one child but no surviving spouse or civil partner

If there is no surviving spouse or civil partner, but the deceased has children, their estate is divided equally between the children.

Grandchildren

Where a child of the deceased has died before them, if they have children, they will inherit the child’s share equally.

No spouse or civil partner or children

If the deceased does not have a spouse/civil partner or children, other relatives inherit in the following order:

• parents;
• siblings;
• grandparents; then
• uncles and aunts.

So, if the deceased’s mother was alive and the deceased has a surviving brother and two surviving aunts, the deceased’s mother would inherit the whole estate.

No surviving relatives

The estate goes to the Crown. This is called bona vacantia.

Changing the allocation

The intestacy rules may not give the best outcome and may also result in inheritance tax being payable unnecessarily. For example, where under the intestacy rules relatives other than the spouse or civil partner inherit more than the deceased’s available nil rate bands, inheritance tax will be payable, whereas if the whole estate, or at least that in excess of the available nil rate bands, was left to the spouse or civil partner, no inheritance tax would be due.

This need not be a problem. As long as everyone who is over the age of 18 agrees, the allocation can be changed within two years of death by making a deed of variation. This effectively writes a will from the grave.

Most people assume that when you sell your home, there is no tax. Are they right?

In 2024, Angela Rayner was asked whether she paid tax on the sale of her ex-council house. She said no because it was her main residence, which was exempt from capital gains tax CGT). Like many people, she assumed that selling her home resulted in no tax.

In many cases, this is correct; if you have one house with a modest garden and live in it throughout, any capital gain will normally be exempt from capital gains tax (CGT) due to main residence relief, more commonly known as principal private residence (PPR) relief.

Not fully covered?

However, full exemption is not guaranteed. The gain must be apportioned where:

 • part of the property is not used exclusively as a residence (e.g., if part of the building is used as a shop or office). The word ‘exclusively’ avoids problems for people working from home, as typically, you would not have an area dedicated exclusively to your work;

 • you’ve had periods where you did not live there (e.g., if you rented it out while you lived elsewhere). The gain is split between the periods of occupation and non-occupation, with only the occupied portion being exempt. However, some periods can be deemed as periods of occupation; or

 • the garden exceeds 0.5 hectares, unless you can demonstrate the larger garden is required for the proper enjoyment of the property.

This apportionment results in only part of the gain being exempt and the non-occupied period remaining liable to CGT at 24% (for 2025/26).

Deemed occupation

Any capital gain must be apportioned (on a time basis) between periods of occupation and nonoccupation. Some periods are treated as if you occupied the property even if you did not. These periods are:

 • the final nine months of ownership; these are always treated as occupied;

 • up to 24 months from the purchase date if you could not move into the new property because it was still being built, renovated, altered, etc., or if you were waiting to sell your old home and still living there;

 • up to three years of absence (in total) for any reason;

 • up to four years if your employer requires you to live elsewhere for the performance of your duties; and

 • any amount of time if your employer requires you to work fully outside the UK.

The effect of these deemed periods is the possibility of claiming PPR relief on two or more properties concurrently. However, the last three deemed periods only apply if you lived in the property both before and after the non-occupation – creating a heavy incentive to move back into the property and unlock the extra PPR relief.

Quality not quantity

A question often asked of tax advisers is: “how long do you have to live in, or move back into, the property to claim the PPR reliefs”?

The legislation is not prescriptive on this point, but the case law is clear that it is the quality of occupation which is important. So, a period of a few months where the property is clearly a home could qualify. But a longer period may not qualify if the evidence suggests the use is transitory or not substantive, such as in some of the cases brought by property developers who hoped to exempt the gain on a development using PPR relief.

Many advisers suggest that at least six months is required.

Multiple residences

Only one home can be your ‘main’ residence and attract PPR relief. If you have more than one home, you can elect which one you want to qualify, failing which the decision is made based on the facts.

The election must be made within two years of first having two residences, but can then be varied at any time. This gives some interesting planning opportunities to unlock PPR relief on multiple properties.

Example: PPR relief elections Bill owns three properties: a house in Bristol bought for £400k in July 2014; a flat in London bought in July 2022 for £800k; and a cottage in Cornwall bought in July 2023 for £400k. He uses all three as homes, splitting his time between them.

In March 2024, Bill started planning his retirement. In June 2024, he sold the Bristol house for £900k (a gain of £500k), and the London flat for £1m (a gain of £200k). In June 2025, he sold the Cornwall cottage for £550k (a gain of £150k).

Without an election, it’s likely HMRC will argue that the Bristol house is the main residence and exempt the £500k gain, with the £200k London gain fully taxable. But in March 2024, Bill is in time to make an election to determine his main residence. If he elected for London to qualify effective from purchase in July 2022, the £200k London gain becomes fully exempt.

However, now the Bristol gain is only partially exempt. Bill can claim the first eight years and the final nine months, meaning 8.75 years out of the full ten years of ownership, resulting in a gain of £62,500 – much lower than the (now exempt) £200k gain on the London flat.

After selling London and Bristol, the Cornwall cottage becomes the PPR for 12 months until the sale. As he owned it for two years, he can claim 50% PPR relief, leaving £75,000 taxable.

But, because Bill has planned carefully, after electing the London flat as his main residence, he immediately varied the election, moving the PPR to the Cornwall cottage effective from October 2023. The gains on London and Bristol are unaffected because the final nine months are always exempt, but the Cornwall property is now exempt for 1.75 years out of the full two years of ownership, leaving only £18,750 taxable. Without the elections, Bill would realise gains of £nil on Bristol, £200k on London, and £75k on Cornwall (total £275k).

After the elections, the gains are £62,500 on Bristol, £nil on London, and £18,750 on Cornwall (total £81,250). This reduces his gains by over £193k, and from October 2023 to June 2024, he had three properties qualifying for PPR relief.

Married couples It is important to remember that married couples can only have one main residence, and elections must be given by both spouses.

It was this rule which got Angela Rayner into hot water, as she had moved into her husband’s home and assumed that her previous home would continue to be exempt because she only owned one property.

Too good to be true?

As the example shows, the combination of deemed periods of occupation and the careful use of elections can generate substantial tax savings. But would HMRC challenge this?

Whilst it might seem too good to be true, the examples in the general anti-abuse rule (GAAR) guidance specifically reference taxpayers claiming PPR relief on multiple properties as something which is not abusive. So, HMRC is unlikely to challenge the use of elections; however, it will carefully investigate whether the properties really were residences (looking at the quality of the occupation).

Other points

Here are a few other points to bear in mind with PPR relief:

 • While PPR relief can exempt a capital gain, do not forget it also makes a capital loss unallowable. Any loss is apportioned in the same way as a gain, so some loss could still be available.

 • Since 2015, when non-UK residents became liable to UK CGT, special rules were introduced for PPR relief. The rules can be fiddly; but broadly, PPR relief is only available to a nonresident if they spend at least 90 nights in the house in a tax year.

 • If there are periods when you rented out part of the property to a lodger (i.e., you were sharing the house with them), then letting relief up to a maximum of £40,000 is available.

Practical tip

For any property to qualify for PPR relief, you must live in it as a home and make sure you can demonstrate the quality of your occupation. Where you have more than one home, an election is usually beneficial and careful consideration of how to use elections can produce substantial tax savings.