Accounting for property letting – what is taxable?

First establish whether the letting is capital income or a business – that governs both the tax rate and which rules apply. Letting real property is as a general rule outside the scope of VAT, but voluntary registration can give a deduction for construction costs on commercial letting. And where a building has a construction measure with at least NOK 100,000 of input VAT, the adjustment rules follow it for ten years.

Capital income or a business?

This is the starting point for everything else. Passive letting of one or a few units is often treated as capital income, taxed as general income. Extensive letting with many units, active management, maintenance and administration can become a business – and then personal income, national insurance contributions and bracket tax come in for a personal landlord. There is no fixed threshold in number of units. The scale and character of the activity decide.

Letting your own home

Where you let part of the home you live in, the rental income can be tax-free provided you use at least half the home yourself, measured by rental value. For short-term letting of your own home a specific formula applies, with a tax-free base amount and a fixed share of the excess treated as taxable income. Check the current amount and percentage with Skatteetaten before booking the income – both have changed.

A second home

Letting a property you do not live in is as a general rule taxable from the first krone. The deduction side is then relevant too: maintenance, municipal charges, insurance, shared costs and any interest can be deductible under the ordinary rules.

Letting is normally outside the scope of VAT

Letting real property is as a general rule outside the scope of VAT. Out of scope is not the same as zero-rated: the landlord charges no VAT but gets no deduction for input VAT on costs relating to the space – see VAT exemptions

Voluntary registration for commercial letting

For commercial premises there is an important arrangement: voluntary VAT registration. Where the premises are let to a business that is VAT-registered and uses them in its registered activity, the rent can be invoiced with 25% VAT and the landlord can deduct the relevant costs for that space. That can be decisive for a new building, where the construction VAT would otherwise be a final cost. The conditions, the six-month rule and the unbroken chain requirement on subletting are in Voluntary VAT registration for letting property

Mixed buildings and mixed-use areas

In a building with both VAT-liable and out-of-scope tenants, the areas and the costs have to be apportioned. A mixed-use area – where the same tenant uses the same space for both VAT-liable and out-of-scope activity – can be covered in full by the landlord's voluntary registration, with the tenant apportioning its own deduction. Common areas such as corridors, stairs and lifts are something else, and the right to deduct is assessed from the use made by the tenants the area serves. The two are often confused and give different answers.

Deposits

A deposit is not the landlord's income. Under the Tenancy Act a deposit has to be placed in a separate account in the tenant's name, and the landlord must not use it during the tenancy. A deposit taken into the landlord's ordinary operating account is both a tenancy law and an accounting problem.

Maintenance or improvement?

Maintenance restores the property to its earlier standard and can often be expensed directly. Improvement means betterment beyond the earlier standard and normally has to be capitalised. The line is the most disputed in property accounting, particularly on a full refurbishment. A bathroom brought up to today's standard is not automatically just maintenance – see Depreciation

Depreciation – not 2% on everything

Commercial buildings sit in group i at 2%. Buildings and plant sit in group h at 4%, and within group h there are increased rates for buildings with a short life and for livestock buildings. Fixed technical installations in buildings – lifts, ventilation, heating, plumbing, electrical systems – sit in group j at 10%. Do not apply 2% automatically to everything called commercial property. The classification can multiply the depreciation fivefold.

Empty premises and the adjustment rules

Where premises stand empty while future use is unsettled, the landlord does not normally have an automatic continuing right to deduct on new costs for that space. Vacancy alone does not normally trigger an adjustment of earlier construction VAT. A new build, extension or conversion of real property with at least NOK 100,000 of input VAT can be a capital item, and the use is then tracked for ten years. If the use changes, one tenth is adjusted per year; if the property is sold before the period ends, a full negative adjustment for the remaining years is triggered – unless the buyer takes over the obligation through an agreement made in time. That is the single amount that most often surprises people on a property sale – see The VAT adjustment rules for real property

Selling the property

Selling your own home can be tax-free where the ownership and occupation requirements are met. But where part of the home has been used in a business long enough, a proportionate part of the gain can become taxable – see Home office Selling a rental or commercial property is as a general rule taxable, and a sale of real property is outside the scope of VAT. The adjustment obligation has to be handled in the same transaction. Greenleaf can handle letting accounts, voluntary registration, apportionment keys, adjustment positions and the tax treatment on a sale. Where the property is owned by a housing company, separate rules apply to both the accounts and VAT – see Accounting for housing companies and VAT for housing companies

This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.

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