4. Property income

Question 1

Where a property is residential, how are finance costs deducted?

What does this not apply to?

Answer 1

Tax relief at 20% of their value.

Also applies to interest on loans to:

• acquire, improve, or repair a residential property.
• acquire assets or equipment used for residential letting business.

THIS DOES NOT APPLY TO COMPANIES, COMMERCIAL PROPERTIES OR QUALIFYING FURNISHED HOLIDAY ACCOMODATION.

Question 2

How is capital expenditure treated for property income?

Answer 2

No distinction between capital and revenue expenditure except from:

• Cars: AMAPs or capital allowances
• Assets provided for use in residential property: only cost of replacing asset is allowable on like-for-like basis. Reduced by sale proceeds of old asset (if any).

Question 3

What basis is property income usually on?

Answer 3

Cash basis

Question 4

When must property income be done on an accruals basis?

Answer 4

When income exceeds £150,000. Can opt in below this threshold

Question 5

What are the main differences in treatment under accruals basis? (2)

Answer 5

• Cannot deduct plant and machinery costs as processed under capital allowances
• Impairment losses can be a deductible cost where a tenant leaves without paying rent.

Question 6

How are property income losses treated?

Answer 6

£nil profit for that year and losses carried forward.

Question 7

How do you treat rent-a-room relief?

Answer 7

Allowance of £7,500 (reduced to half if property owned by more than one person).

Can choose to reduce income by actual expenses or £7,500 - whichever is higher.

If gross income less than allowance, automatically exempt. Can opt out of this election if wants to (beneficial where property income is a loss that can carry forward)

Question 8

What conditions must be met for property to be classed as a furnished holiday accommodation (FHA)? (4)

Answer 8

• Let fully furnished commercially.
• Available to let more than 210 days a year.
• Actually let 105 days a year.
• Not let for long term occupation (31 days or more) for more than 155 days.

Question 9

What are the implications of a property being classed as a FHA? (4)

Answer 9

• Losses can only be set against same FHA
• Profits are relevant earnings for purpose of personal pension contributions.
• Treated as a business asset for capital gains tax relief.
• Plant and machinery: in both cases, replacement domestic relief not available to FHAs.
  Cash basis: deduction available on paid basis for all capital expenses.
  Accruals basis: capital allowances available on plant and machinery including furniture.

Question 10

How do you calculate the premium on a short lease?

Answer 10

Premium X
Premium x 2% x (n-1) (X)
= Property income X