THE PROPERTY PAPERS SEPTEMBER - ISSUE 32
LANDLORDS FINANCIAL EST. 2013
CONTENTS | SEPTEMBER 2026
SEPTEMBER - ISSUE 32
- 06 -
RENT RECEIVED FROM YOUR PERSONAL COMPANY
- 09 -
INTEREST RELIEF – MIXED PORTFOLIOS AND MIXED -USE PROPERTIES
-10 -
THE PROPERTY 118 TRIBUNAL DECISION
-13-
DO I NEED TO PAY TAX ON INCOME FROM MY SIDE HUSTLE?
-14 -
INCORPORATION RELIEF – REMEMBER TO CL AIM IT
-16 -
CORPORATION TAX PENALTIES
-19 -
MORE TIMELY PAYMENT OF ITSA
-20 -
SET TLING YOUR 2025/26 PSA
SEPTEMBER - ISSUE 32
The September Update Welcome to the September edition of The Property Papers. As we move further through the 2026/27 tax year, this month’s issue covers a range of important updates and planning opportunities for landlords, property investors, and property professionals. Inside, we look at topics including rent received from your personal company, interest relief for mixed property portfolios and mixed-use properties, and the latest Property 118 Tribunal decision. We also explore whether income from a side hustle needs to be reported to HMRC, important changes to incorporation relief and the need to remember to claim it, corporation tax penalties, and proposals for more timely payment of income tax under SelfAssessment. In addition, we highlight the upcoming deadline for settling your 2025/26 PAYE Settlement Agreement. We hope you find this edition informative, practical, and useful for planning ahead with confidence. As always, if you would like advice tailored to your circumstances, our team is here to help.
LANDLORDS FINANCIAL
5
SEPTEMBER - ISSUE 32
Rent received from your personal company Where a personal company is run from the director’s home, the payment of rent by the company for the use of the space can be a handy way of extracting profits. However, to avoid HMRC scrutiny, the rent should be set at a commercial level. Company’s position The company can deduct the rent paid in calculating their taxable profits for corporation tax purposes.
This means that any rent received from a personal company will be taxable unless sheltered by the personal allowance, even if it is less than £1,000. Where the director has rental income from other properties owned in the same capacity, the rent from the personal company, together with any associated expenses, must be amalgamated with the income and expenses from the other properties (including any holiday lets) to work out the taxable profit for the property business as a whole.
The director’s position If the home is owned solely by the director, they will be taxed on the rent received. However, where property is jointly owned by spouses or civil partners, the rent will be treated for tax purposes as if they had each received 50% of it. The rent is taxed under the property income rules and must be reported on the property pages of the Self-Assessment tax return. It should be noted that the property allowance is not available where a person receives property income from a company that they own or control or which is owned or controlled by someone connected to them.
6
SEPTEMBER - ISSUE 32
Interest relief – Mixed portfolios and mixed-use properties The way in which an unincorporated landlord receives tax relief for interest and finance costs depends on whether or not the property is a residential property. Relief for interest and finance costs incurred by unincorporated landlords in respect of residential lets is given as a basic rate tax reduction, whereas the interest and finance costs relating to non-residential properties are deducted in calculating the taxable rental profits. Where a property portfolio comprises both residential and non-residential lets or where a property has both residential and nonresidential parts, it is important that interest and finance costs are treated correctly. Mixed property portfolios Where an unincorporated landlord has a property portfolio which includes both residential and non-residential lets, the treatment of interest and finance costs will depend on the nature of the property to which they relate. Where there are separate mortgages for each property, it is straightforward to identify whether the interest relates to a residential or a nonresidential property. The interest relating to non-residential lets can be deducted in calculating the taxable rental profit whereas relief for the interest on the residential lets is given in the form of a basic rate tax reduction. Example Hughie owns two properties which he lets out – a flat and an industrial unit. The flat has a mortgage of £100,000 and Hughie pays interest of £4,000 in the tax year.
The industrial unit has a mortgage of £60,000 in respect of which Hughie pays interest of £3,600. He can deduct the interest of £3,600 paid in respect of the industrial unit in calculating the taxable rental profits. However, relief for the interest on the residential mortgage is given as a basic rate tax reduction of £800. Mixed-use property Where a property has both residential and non-residential parts, as would be the case for a shop with a flat above it, the interest must be apportioned to the various parts on a just and reasonable basis. For example, this may be by reference to the value of each part or by floor area. The interest apportioned to the nonresidential part can be deducted in calculating the taxable rental profits, whereas relief for the interest apportioned to the residential part is given as a basic rate tax reduction. Example Bella lets out a shop with a flat above. She has a mortgage of £200,000 on the premises on which she paid interest of £10,000 in the tax year in question. The flat accounts for 60% of the floor area and the shop for 40%. £4,000 of the interest (40% of £10,000) is attributed to the shop and deducted in calculating the taxable rental profits. The balance of £6,000 (60% of £10,000) is attributed to the flat and relieved as a basic rate tax reduction of £1,200.
9
SEPTEMBER - ISSUE 32
The Property 118 Tribunal decision
The Property 118 Tribunal case concerned whether Scheme Reference Numbers (SRNs) issued in respect of two sets of arrangements were validly issued. The arrangements in question – the SIS and the CAR – were designed to incorporate a property business run by a husband and wife to take advantage of the fact a company can still deduct interest and finance costs incurred in relation to residential lets – the interest relief restriction for unincorporated residential landlords does not apply to companies. The Substantial Incorporation Structure (SIS) transferred the beneficial ownership of the properties to the company while the existing mortgages and legal title on the properties remained in the landlord’s name. The landlord collected the rents and paid the expenses on the company’s behalf. The Capital Account Restructure (CAR) worked in a similar way to the SIS but included a bridging loan obtained by the landlord, with the funds being lent by the landlord to the company. HMRC contended that the arrangements were notifiable arrangements in accordance with FA 2004, s. 306. They argued that both arrangements fell within the scope of the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543), description 5 (standardised tax products) and that the CAR also fell within description 3 (premium fee) and/or description 9 (financial products involving contrived steps). They issued SRNs.
10
SEPTEMBER - ISSUE 32
Property 118 and Cotswold Barristers Limited appealed the allocation of the SRNs to the First Tier Tribunal. The issue was whether the SRNs were validly issued. This required the Tribunal to answer several questions, including whether the tax advantage was the main purpose of the arrangement or whether it was a main purpose among genuine non-tax commercial purposes, and whether the schemes fell within description 5 and the CAR within descriptions 3 and 9. The First Tier Tribunal allowed the appeals, cancelling the SRNs. It should be noted that the Tribunal only considered whether the SRNs were validly issued – it did not address whether the schemes work. This is a separate question.
11
SEPTEMBER - ISSUE 32
Do I need to pay tax on income from my side hustle? Many people are taking on a side hustle to make ends meet. This can take various forms, such as selling items online, providing services or creating content. You may need to tell HMRC about your income if your trading income (from all sources including any other selfemployments) is more than £1,000. The £1,000 limit is for all trading income – not for each source. You may also need to sell an item and make a capital gain. Normal tax rules apply – there are no special rules for side hustles. Tax will be payable if your total taxable income from all sources exceeds your personal allowance (set at £12,570 for 2026/27, abating once income reaches £100,000). Here we look at some popular side hustles and see whether you need to tell HMRC about them. Selling clothes on Vinted Where a person simply sells their old clothes on Vinted for less than they paid for them, they do not need to tell HMRC about the income. However, if they buy second-hand clothes with a view to selling them for a profit, they will need to tell HMRC once their total trading income from all sources exceeds £1,000. Remember, this is income before deducting expenses. If the income is less than £1,000, it is covered by the trading allowance, and there is no need to tell HMRC. Tax will be payable on the profit. If expenses are less than £1,000, the trading allowance can be deducted instead. Selling household items Normally, it will not be necessary to tell HMRC if you make money from selling unwanted furniture and household items.
However, if an item such as a painting or an antique is sold for more than £6,000, you may need to tell HMRC and pay capital gains tax if you have made a gain. Special rules apply which cap the chargeable gain. These rules do not apply to private cars and assets with an expected lifespan of less than 50 years. Content creation Content creators may earn money from reviewing items online. They may also be gifted items to promote a brand. When working out the total income from content creation, it is not enough to only include cash payments – the value of gifted items must also be taken into account. Where the total income (before deducting expenses) exceeds £1,000, HMRC must be told. The profit is taxable. When calculating the profit, the £1,000 trading allowance can be deducted instead of actual expenses where this gives a better result. More than one side hustle If you have more than one side hustle, you will need to add together the income from each source to see if it exceeds the £1,000 trading allowance. Remember to include income from any self-employments too. Remember, digital platforms provide income details to HMRC. Fill in a tax return If you need to tell HMRC about your side hustle, you will need to register for SelfAssessment if you are not already registered and file the return online by midnight on 31 January after the end of the tax year to which it relates.
13
SEPTEMBER - ISSUE 32
Incorporation relief – Remember to claim it When a sole trader transfers their business to a limited company, a chargeable gain may arise on the assets transferred. As the connected person rules apply, the gain is calculated by reference to the market value at the date of transfer rather than the sale proceeds, if any. However, where rollover relief on the transfer of a business – generally referred to as ‘incorporation relief’ – is claimed, some or all of the gain can be deferred, reducing or eliminating the immediate capital gains tax bill. Incorporation relief is a capital gains tax rollover relief that can be claimed where a business is transferred to a limited company wholly or partly in return for shares. Full relief is available where the consideration is wholly in shares. Here, claiming incorporation relief allows the full gain to be rolled over, reducing the base cost of the shares. Example 1 Peter incorporates his business, transferring all the assets from his sole trader business to the new limited company, P Ltd, in return for 1,000 ordinary shares in the company. On incorporation, the business was worth £50,000 (£50 per share).In the absence of incorporation relief, a capital gain of £30,000 will be chargeable immediately.
Peter claims incorporation relief. The gain is rolled over, reducing the base cost of the shares to £20,000 (£20 per share). If the consideration is received partly in shares in the new company and partly in cash, incorporation relief is only available for so much of the gain as is attributable to the shares. The part of the gain which is attributable to the cash is immediately chargeable. Claiming the relief A claim to incorporation relief will not always be beneficial – if the transfer of the business gives rise to a capital loss, which may be the case if the assets have depreciated since they were acquired, or if any gain is sheltered by losses and/or the annual exempt amount, there is no point in claiming the relief. However, where incorporation relief is worthwhile, it must now be claimed; prior to 6 April 2026, it was given automatically. Where the transfer of the business takes place on or after 6 April 2026, the relief must be claimed on or before the first anniversary of the 31 January following the end of the tax year in which the transfer of the business took place. This can be done in the Self-Assessment tax return.
14
SEPTEMBER - ISSUE 32
Corporation tax penalties A company tax return must be filed no later than 12 months after the end of the accounting period to which it relates. However, the corporation tax for that period is due earlier and must be paid by nine months and one day after the end of the accounting period. So, if a company’s accounting period is the year to 31 March 2026, they will need to file their company tax return by 31 March 2027. However, the corporation tax for the period is due by 1 January 2027. As the corporation tax due date is before the company tax return filing date, most companies will file the return on time as it will make sense to do the return before the corporation tax is paid. However, there are consequences if the return is filed late or the tax is paid late. Late filing penalties Penalties are charged if the company tax return is as little as one day late. Further penalties are charged if the return remains outstanding three months, six months and 12 months after the due date. The penalties charged are shown in the table below.
16
SEPTEMBER - ISSUE 32 Period after deadline
Penalty
1 day
£200
3 months
A further £200
6 months
A further penalty of 10% of the amount of tax which HMRC estimate to be outstanding
12 months
A further penalty of 10% of any unpaid tax
Persistent late offenders are fined more heavily – if the company tax return is late three times in a row, the £200 penalties are each increased to £1,000. Taxpayers with a reasonable excuse (in HMRC’s eyes) for filing their return late can appeal against any late filing penalties charged. However, they must have filed the return before appealing. Where the company tax return has not been filed six months after the due date, HMRC will decide how much corporation tax the company must pay. This is known as a tax determination. A company cannot appeal against this. However, once they have filed their company tax return and paid the tax due, HMRC will recalculate the penalties and interest based on the actual liability. Late paid corporation tax There are no penalties for paying corporation tax late. However, interest is charged at a rate of 4% higher than the Bank of England base rate from the due date until the date on which payment is made.
17
SEPTEMBER - ISSUE 32
More timely payment of ITSA Over the summer, HMRC consulted on proposals for the timelier payment of income tax due under Self-Assessment (ITSA). Currently, taxpayers within SelfAssessment must pay their income tax and any Class 4 National Insurance by midnight on 31 January after the end of the tax year to which it relates. This means that income tax and Class 4 National Insurance for 2025/26 must be paid in full by midnight on 31 January 2027. If the tax and Class 4 National Insurance bill for the previous tax year was £1,000 or more, unless 80% of the amount due for the year was collected at source, such as under PAYE, the taxpayer must make payments on account of the current year’s liability on 31 January in the tax year and on 31 July after the end of the tax year. Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Any balance due must be paid by 31 January after the end of the tax year. Taxpayers with PAYE income Taxpayers who are within Self-Assessment and who have a PAYE source of income will make in-year payments on account of their Self-Assessment tax bill through PAYE from 6 April 2029 (2029/30 tax year).
Other taxpayers Where a taxpayer has no or insufficient PAYE income for tax and Class 4 NIC that they owe through Self-Assessment to be collected in year through PAYE, HMRC are exploring increasing the frequency of payments on account and advancing them so that all payments on account are made in the same tax year as the income to which they relate. Under this proposal, the payments would be based on the taxpayer’s forecasted liability which in turn would be based on past returns. Once the taxpayer had reported their liability for the year, the amounts paid and owed would be reconciled, with the taxpayer making a balancing payment or receiving a refund as necessary. Transition year Moving to in-year payment will mean that in the transition year taxpayers may be paying tax for more than one tax year. Although the actual tax paid will not change, moving the payment dates in year may cause cashflow difficulties for taxpayers. HMRC are considering options to support taxpayers during the transition, such as spreading payments for previous years over a longer time frame.
19
SEPTEMBER - ISSUE 32
Settling your 2025/26 PSA If you have a PAYE Settlement Agreement (PSA) in place for 2025/26, you will need to pay the tax and Class 1B National Insurance due under the agreement by 22 October 2026 if you make your payment electronically. However, if you pay by cheque, your cheque must reach HMRC no later than 19 October 2026. Before you can make the payment, you will need to work out what you owe and tell HMRC. If you have not already done this, you should do this without delay. This can be done online using form PSA1 (see www.gov.uk/guidance/tell-hmrc-the-value-of-items-in-your-paye-settlementagreement). As tax paid on an employee’s behalf is itself a taxable benefit, the tax on the benefits included in the PSA must be grossed up. To work out the tax due, you will need to know the marginal rate of tax for employees receiving the benefit and the value of the benefits provided to employees in each tax band. Example A Ltd settles the tax due on the annual Christmas gala dinner by means of a PSA. The dinner cost £250 per head and was attended by 20 employees paying tax at the basic rate and by eight employees paying tax at the higher rate. The grossed-up tax is calculated as follows:
Value of benefits provided to basic rate taxpayers @ 20% (£250 x 20) @ 20%
£1000
Grossed up tax £1,000 x 100/80 Value of benefits provided to higher rate taxpayers @ 40% (£250 x 8) @ 40%
£1250
£800
Grossed up tax £800 x 100/60
£1333.33
Tax due under the PSA
£2,583.33
Class 1B National Insurance is payable on the taxable value of the benefits and on the tax due under the PSA. For 2025/26, the Class 1B rate is 15%. In this example, the Class 1B liability is £1,437.50 (15% ((£250 x 28) + £2,583.33)). Making the payment Once the calculation has been submitted, you will receive a payment reference and a payslip. Payment can be made online at www.gov.uk/pay-psa by approving a payment through your bank account, by debit card or by corporate credit card. You will need the payment reference. Payment can also be made through online or telephone banking or by direct debit.
20
SEPTEMBER - ISSUE 32
Dedicated Property Accounting You Can Trust At Landlords Financial, we provide specialist bookkeeping, accounting and taxation services exclusively for the property sector. We help landlords, investors, and agents stay compliant, organised, and financially confident. From bookkeeping and monthly management accounts to year-end filings and all property-related taxes, including VAT, Corporation Tax, ATED, and payroll, we keep your finances in order with clear, accurate, and reliable reporting. Fixed-fee options make budgeting simple for UK and overseas clients alike. We also offer specialist service charge accounting for residential and commercial properties, delivering transparent, trustworthy reports for tenants and stakeholders. With dedicated property expertise, straightforward communication, and professional, reliable support, we make managing your property finances simple. Contact us today for a complimentary consultation.
MANCHESTER DIDSBURY BUSINESS CENTRE , 137 BARLOW MOOR ROAD, DIDSBURY, MANCHESTER, M20 2PW LONDON 1 HARLEY STREET, MARYLEBONE , LONDON, W 1G 9QD
020 3700 8178 WWW.L ANDLORDSFINANCIAL .COM
22
MANCHESTER DIDSBURY BUSINESS CENTRE , 137 BARLOW MOOR ROAD, DIDSBURY, MANCHESTER, M20 2PW LONDON 1 HARLEY STREET, MARYLEBONE , LONDON, W 1G 9QD
020 3700 8178 WWW.L ANDLORDSFINANCIAL .COM
© 2026 | Landlords Financial All Rights Reserved. Unauthorised reproduction, distribution or republication of any material from this newsletter, in whole or in part, is strictly prohibited. For permissions, please contact ‘info@landlordsfinancial.com’