Rent — business premises

Conditions

1. HMRC's manual says expenses connected with premises or land occupied by a trader for the purposes of their trade will normally be allowed as a deduction unless the expenses relate to a capital matter, and gives as an example of an allowable expense rent paid by a trader to the landlord for premises they use for business purposes (BIM46801). GOV.UK's self-employed expenses guidance lists rent for business premises among the costs you can claim.
2. Sole trader: no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade, but if an expense is incurred for more than one purpose that does not prohibit a deduction for any identifiable part or identifiable proportion of it incurred wholly and exclusively for the trade (section 34 ITTOIA 2005). Limited company: the same two rules are in section 54 CTA 2009. HMRC's manual distinguishes a definite part or proportion laid out wholly and exclusively for the trade, which should not be disallowed, from an expense incurred for a dual purpose, which should be (BIM37007).
3. Living at your business premises: a sole trader, or a partnership with no company partners, whose premises are used mainly for the business but are also their home can instead use simplified expenses. You take the expenses for the premises and subtract a flat rate for non-business use of £350 a month for one relevant occupant, £500 for two, or £650 for three or more, for 2026/27 (section 94I ITTOIA 2005). GOV.UK's examples are a guesthouse, bed and breakfast or small care home. Limited companies cannot use simplified expenses.
4. Rent paid to a relative, a spouse or a connected company is tested in the same way. HMRC's guidance on prices paid above the commercial price is headed 'The excess over the commercial price is not for the purposes of the trade' and sets out the judgment it is based on: if it is proved that some non-commercial reason caused the trader to pay more than he otherwise would have done, the payment can no longer be held to have been wholly and exclusively expended for the purposes of the trade. It also records that a finding of duality of purpose could lead to disallowance of the whole of the expenditure, though in the case it describes the Revenue agreed to allow the market value, and that the Revenue cannot second guess the amount paid where there are sound commercial reasons (BIM38400).
5. If, under an obligation entered into for trade purposes, you keep paying rent for premises that are no longer exclusively used for the trade, the difference between the rent paid and any rent received is deductible if you sublet the whole or part of the premises at a loss, or leave them wholly or partly empty (BIM46815).
6. Not every payment to a landlord is deductible rent. HMRC's manual says payments of commuted rent are not made for the purposes of the trade and should not be allowed, and that a lump sum payment by a tenant to vary the terms of an onerous lease agreement is not an allowable expense (BIM46810).
7. A lease premium is a sum paid on the creation of an interest in property and, as such, is capital on normal principles (PIM1202). No deduction is allowed for items of a capital nature (section 33 ITTOIA 2005, section 53 CTA 2009). Where land used in connection with a trade is subject to a 'taxed lease', the tenant is instead treated as incurring a revenue expense for each day in the receipt period on which they occupy the whole or part of the land for the purposes of the trade (section 61 ITTOIA 2005; section 63 CTA 2009). HMRC's manual says the effect is that the part of the premium taxable on the landlord is spread across the term of the lease and a deduction allowed accordingly (BIM46255), and that this chapter deals with premiums paid for a lease of no more than 50 years (BIM46250). GOV.UK also says that if you build, buy or lease a structure you may be able to claim structures and buildings allowance. Ask your accountant which of these applies to your lease.
8. Sole trader on the cash basis: all eligible businesses must start using the cash basis from 6 April 2024 unless they elect to calculate their profits in accordance with generally accepted accounting principles (BIM70000). On the cash basis sections 60 to 67 ITTOIA 2005 (tenants under taxed leases) do not apply (section 56A ITTOIA 2005), and no deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision of land (section 33A ITTOIA 2005). No capital allowances are available on the cash basis except on a car (section 1A CAA 2001), so the structures and buildings allowance is not available either. Companies cannot use the cash basis (BIM72010).
9. Employee: there is no specific relief for rent on business premises. An employee's general deduction requires that the employee is obliged to incur and pay the amount as holder of the employment, and that it is incurred wholly, exclusively and necessarily in the performance of the duties of the employment (section 336 ITEPA 2003). For rent at home, GOV.UK's working-from-home guidance says you cannot claim for things that you use for both private and business use, such as rent, and that from the tax year 6 April 2026 to 5 April 2027 you will not be able to claim tax relief for working from home; HMRC's manual says that from 6 April 2026 onwards a deduction from earnings is no longer permitted for an employee's additional household expenses (EIM32759, section 360B ITEPA 2003).

Common mistakes

• Deducting a lease premium in the year it is paid as if it were rent. A premium is capital on normal principles (PIM1202); on the cash basis the taxed-lease rules do not apply (section 56A ITTOIA 2005), and otherwise what is deductible under them is a daily amount spread across the lease (BIM46255).
• Paying a connected landlord more than a commercial rent for a non-commercial reason, such as helping a relative. HMRC's manual says the excess over the commercial price is not for the purposes of the trade (BIM38400).
• Deducting a lump sum paid to vary the terms of an onerous lease as though it were rent (BIM46810).
• Claiming rent for a room at home under this entry rather than through the home-office entry.

What to keep

• Lease or tenancy agreement showing the rent, any premium, the term and the parties.
• Rent invoices, receipts or bank records evidencing payments made.
• Where the landlord is connected to you, evidence of how the rent was set and what comparable premises let for.
• If you live at the premises and use the simplified expenses flat rate, a record of how many people live at your business premises over the year, which GOV.UK says to keep.

Real-world example

A self-employed photographer rents a studio unit on a commercial estate for £800 per month, so £9,600 a year, and uses it only for her business. Rent paid to the landlord for premises used for business purposes is one of HMRC's examples of an allowable expense (BIM46801), so the £9,600 is deductible. A photographer working from a spare bedroom at home would look at the home-office entry instead.

Frequently asked