TXF6 UK
Syllabus E. Corporation Tax Liabilities E2. Taxable total profits

E2d. Property business profits/losses - for Companies 4 / 14

Syllabus E2d)

Compute property business profits and understand how relief for a property business loss is given.
and 
The use of such exemptions and reliefs is implicit within all of the above sections 1 to 5 of part E of the syllabus, concerning corporation tax.

Compute property business profits

The calculation of property business profits is exactly the same as that for individuals with 4 exceptions:

  • Interest payable on a loan to buy an investment property is deducted from “Interest income” under the loan relationship rules as opposed to “property business profits”. 

    The 100% restriction to interest expenses that we saw in the income tax topic does not apply to companies.

  • There is no rent a room relief for companies as a company will not have a main residence.

  • Property losses for a company are entirely relieved against Total Income of the:
     
    1) current year or
    2) carried forward to future years.

    Note:
    Property losses CANNOT be carried back 12 months. ONLY Trading losses CAN

    Qualifying charitable donations (QCD) CANNOT be saved!

    LOSS must be deducted first and if any income remains - then the QCD can be deducted

  • Property income is calculated using the accruals basis for companies, not the cash basis.

Please refer to Topics: Computation of property business profits, Furnished holiday lettings, rent a room relief, premiums granted for short leases, property business loss relief to review how property business profits are calculated.

Illustration:

For the year ended 31/03/2021 Theta Ltd. has:
Trading income  £100,000 
Property loss (£20,000)
Qualifying charitable donation  £85,000

What will Theta Ltd. taxable total profits be?

Solution:

Trading income £100,000
Property loss (£20,000)
Net income £80,000
Qualifying charitable donation  (£80,000)
Taxable total profit Nil 

Note that the property loss is relieved before the qualifying charitable donation against total income.

Additionally, this has resulted in £5,000 of the qualifying charitable donation being wasted.