9 - Direct Investments (C) Flashcards
C Property
Income received from letting property is subject to which type of tax?
Income tax
What is the default basis of calculating property income?
What is the alternative?
Cash basis (when rental income does not exceed £150,000)
Accruals basis.
What is the annual property allowance and how does it work?
Property income is exempt if it is less than £1,000 (before deducting expenses). If property income is more than £1,000, then the £1,000 allowance can be claimed against income – instead of deducting actual
expenses.
What are deductible expenses?
Any expenses incurred in earning rental income, such as repairs, maintenance and letting agency fees
What type of property maintenance is now allowable for deductible expenses?
Alterations and improvements, or the cost of bringing a newly bought building into a fit state for letting.
Name some other types of expenses deductible for income purposes, exc. repairs and maintenance (7)
- legal fees for renewals of short leases (less than 50 years’ duration), debt collection and
eviction of bad tenants; - professional charges for rent collection and property management;
- premiums for insuring the property;
- water rates, ground rents and council tax when paid by the landlord;
- gas and electricity when paid by the landlord;
- business mileage calculated either at HMRC’s fixed rate per mile (see Mileage
allowances on page 1/21) or based on the actual cost; and - the cost of any services provided and paid for by the landlord, e.g. cleaning and
gardening.
Which type of property qualifys for the structures and buildings allowance?
Residential or commercial?
Commercial
What type of capital allowances are available to deduct as an expense in arriving at the taxable profit?
Plant and machinery allowances.
How much is the annual investment allowance (AIA)?
£1m
Do capital allowances count towards the annual investment allowance (AIA)?
Yes
How much tax is charged over the annual investment allowance (AIA)?
Qualifies for a writing-down allowance at the rate
of 18%.
The remainder is carried forward on a reducing balance basis.
Which type of furnishings in a let property are not allowable for deduction of the capital allowance relief?
Anything fixed to the property such as toilets and baths
Which type of furnishings in a let property are allowable for deduction of the capital allowance relief?
White goods
Kitchenware
Furniture
Income from letting property is taxable in the tax year in which it arises. When do accounts have to be prepared for?
Accounts have to be prepared for the actual tax year, although HMRC usually accepts accounts to 31 March instead of 5 April.
A 40-year lease is granted for a premium of £100,000. Calculate the income element.
Premium, minus (40-1) x 100,000 / 50
Page 9/10 R03 study text
Part of the sum received (premium) from a short lease, is often counted as income for tax purposes. How many years is a short lease?
Less than 50
What is a reverse premium?
A reverse premium is a sum paid by a landlord to induce a potential tenant to take out a lease.
A disposal of let property is liable to which type of tax?
CGT
How do you claim rent-a-room tax relief?
If earn under £7,500 in rental income, you don’t need to do anything, it’s automatic. If over £7,500, you have to do a tax return.
Why might a landlord choose not to claim the rent-a-room relief if there gross receipts are less than £7,500?
If he has made a loss
How soon and when does the landlord need to opt out of tr automatic rent-a-room relief?
Within 12 months of 31 January following the end of the tax year
If gross receipts for rent-a-room relief are more than £7,500, what are the landlords 2 options?
- Taxed on a normal basis (income less expenses)
- Taxed on the amount in excess of £7,500, with no deduction for expenses
What is the limit for rent-a-room relief?
£7,500 (£3,750 per person if sharing between landlords; husband and wife for example)
The rent-a-room relief applies to furnished or unfurnished accomodation?
Furnished
For rent-a-room relief to be available, where must the property be?
UK
For rent-a-room relief to be available, the property can only be used as what?
Residence, non office/business
Can you qualify with rent-a-room relief on a self-contained unit?
No
How long must a furnished holiday letting be available to the public each year to benefit from certain tax advantages?
At least 210 days in total in the tax year
How long must a furnished holiday letting be let for during a year to benefit from certain tax advantages?
105
If a furnished holiday letting doesn’t exceed reach 105 let days in a year, which 2 things can be done to still benefit from certain tax advantages?
- An average can be taken over two or more properties, which may enable all to qualify.
- Make a “period of grace election” if a property has reached the occupancy threshold in previous years.
What is the pattern of occupation condition?
If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, you cannot claim its a furnished holiday letting, and will therefore lose certain tax advantages.
i.e., up to 5 people can let your furnished holiday letting for 31 days each, only after that will it lose its FHL status
Furnished holiday lettings that satisfy certain conditions, can enjoy which tax advantages?
Individuals benefit from being able to pay pension contributions on the basis of the income
CGT rollover relief, holdover relief and business asset disposal relief may be available on the disposal of a property used for furnished holiday lettings
For how many days must a property (1) be available for letting, and (2) actually be let for, during a tax year, for it to meet the occupancy conditions for treatment as a furnished holiday letting?
210
105
What are the 3 main tax advantages of investing in woodlands?
- Profits generated by the commercial occupation of woodlands in the UK are exempt from
income tax. - IHT can be postponed until the trees are cut and the timber sold, provided the woodland
has been owned for five years. - Woodlands managed on a commercial basis are also exempt from CGT.
When can letting income be taxed as trade?
When the landlord provides substantial services as well as the property.
What tax relief will be available in respect of interest on a loan taken out for the purpose of a residential property letting business?
Tax relief for the loan interest will be given as a basic rate deduction.
