CH 8 - Property Income Flashcards
Property income is taxed as what type of income?
Non saving income
What is the default basis for calculating property income?
cash basis (so long as it doesnt exceed 150,000 of receipts)
by cash basis, we therefore mean the actual cash rental income received that year - allowable costs
How do we deal with property income from multiple propertys?
We aggregate them all into a single figure
If it was elected to look at property income on an accruals basis, we would look at?
Rent receivables for the year - allowable expenses
When a landlord rents out a property, they are going to incur expenditure.
In order for this expenditure to be allowable, it must be?
Wholly and exclusively for the purposes of letting
Examples of allowable deductions include?
Insurance, mortgage interest, agent fees, council tax, repairs and maintenance, gardening and cleaning (IF THE LANDLORD IS PAYING THIS)
We also have capital expenditure which will be allowable (hence deductable).
When the cash basis applies, most cap ex is deductable in the period it is expensed, however an exception of this is for the purchase of domestic items e.g furniture and equip. What basis applies here?
The replacement basis, e.g we can only deduct them if they are replaced.
E.g we have a flat I rent out and I buy a washing machine. This initial expense is not allowable, but down the line if this is replaced, we can then deduct this replacement cost
The replacement basis is on the basis that it must be a?
Like for like basis
E.g cant replace washing machine with a dryer
On the accruals basis however, most cap ex are NOT deductible, except in the case where?
The cap ex genuine repairs and maintenance
The dining furniture was originally £500.
Gaynor sold the old dining furniture for £90. Furniture of a similar standard to
the old furniture would have cost £450.
What would we show in the cash basis in terms of allowable exp?
The original cost of the furniture is NOT allowable, however the replacement cost is allowable NET of any proceeds received from sale of old furniture.
Hence,
Replacement cost = 450
Proceeds = 90
450 - 90 = £360
When it comes to interest on mortagage payments (finance cost), when are we allowed to fully deduct this from property income?
Only if the interest is for a commercial property, NOT a residential property
Hence if the interest is from mortgage payments for residential properties, we can never deduct this as an allowable expense. But, what we can do is?
E.g Joe incurred £800 in interest for 23/24 based on a loan incurred to purchase a residential property.
Allow is as a relief within income tax, using 20% basic tax relief
In example, none of the 800 will be deducted from property income, but will qualify for basic rate income tax relief
When we say we can have 20% basic tax relief, this 20% is always the lower of 3 things. These are?
Finance cost
Property income
Adjusted total income over PA (12570)
Where is property income in our income tax comp?
NSI:
Employment income
Property income
Net income
Less: PA
Taxable income
Apply bands; 20%, 40% or 45%
A property allowance can be taken against the gross rental income of up to £1000.
What happens if:
1. Gross rental income < 1000
2. Gross rental income > 1000
- It automatically applies, and taxable property income = 0
However the tax payer can elect to not use this allowance, and instead take off the actual expenditure occured. This would be worth doing if a loss were to arise from this (e.g rental income 800, expenses 900). The PA will always just take you to 0, whereas deducting expenses can get you to a minus figure.
- Automatic starting point is to deduct expenses incurred, howevrr can elect to use the property allowance (which makes sense if expenditure is less than 1000)
