6. Property & Structured

Question 1

Describe the rent a room scheme and annual property allowance

Answer 1

Property owner renting out furnished room(s) in own home

Tax-free up to threshold £7.5k (RaR) or £1k (annual property allowance)

If income is over threshold, taxed as either:
i. total rent less expenses
ii. rent in excess of threshold (no exps deduction)

Question 2

Key features of CGT PPR relief? (3)

Answer 2

Applies to main residence; 2 years to choose one (1 per couple)

Includes up to 0.5 hectares or land or more if reasonable

Question 3

What are the exemptions/exclusions of PPR?

Answer 3

Excludes areas of property let or used for business / commercial

Available for periods:
- last 9 months ownership
- first 12+12 months ownership

Does not apply to job related accommodation if any:
- essential
- customary to provide
- for safety/security

Question 4

What is the tax treatment of mortgage interest for landlords?

Answer 4

Cannot claim as deduction - receive 20% tax credit

Question 5

What is the structure of a REIT for tax?
CT + dividends for shareholders

Answer 5

Business split into property rental & general property

Rental business exempt from CT if 90%+ profits are paid out
- dividend paid net of 20% withheld income tax

General profits subject to CT
- dividends paid gross

Question 6

Describe a Property Authorised Investment Fund (PAIF)
Structure/tax

Answer 6

60% assets must be property & 60% net income from property (real or holding REIT etc)

Income divided into 3 categories:
Property; no CT, divs paid net of 20% withheld income tax
Dividend; taxed as normal
Interest; no CT, divs paid net of 20% income tax withheld

PAIF does not pay CT on gains made - investor pays CGT on sale of shares

Question 7

Describe guaranteed equity/income bonds? (5)

Answer 7

Capital underwritten by 3rd party
Defined lifespan
Offer proportion of growth of an index eg 125% of FTSE growth
Income bond pays interest monthly, equity bond is zero-coupon
Bond issuer buys index call options

Question 8

What are the 2 types of protection offered on structured products?

Answer 8

Hard; capital underwritten by 3rd party

Soft; capital returned if index does not fall below certain level (barrier)

Question 9

Describe a kick out / auto call plan? (2)

Answer 9

Product offers fixed growth after 5 years

Provider can terminate early if index has grown

Question 10

Rental yield calculation?

Answer 10

Gross rent - expenses
_______________________
Price + acq costs

Ignores mortgage interest