Ch 8: Property & investment income

Question 1

Replacement furniture relief - what is the criteria to be applicable to get relief?

Answer 1

The property has to be at least part furnished

Question 2

Can you deduct replacement costs?

Answer 2

Yes, but has to be like-for-like where item is improved

Question 3

Treatment of financing costs - how much is deductible from the individuals property income?

Answer 3

Only 25% of the finance cost

*The remaining 75% of the finance cost will be relieved at the basic rate 20% from taxpayers IT liability

Question 4

What are the 4 conditions for FHL?

Answer 4

Location: EEA property only
Available for short lets (<31 days): >210 days in the tax year
Occupied: actually let >105days in the year
Occupation pattern: property not let for periods of longer-term occupation (>31days) for > 155 days.

Question 5

What amount of rent classifies as tax free?

Answer 5

< £7500
*Above this tax payer can choose to be taxed on gross receipts less £7500 OR under the normal rental income rules - pick option with lowest amount

Question 6

How do you calculate the rental element of a short lease premium?

Answer 6

51-D/50 (D = duration of the lease)

• landlord paying the premium = included in property income
• trader paying the premium = annual deduction

Question 7

How do you calculate the annual deduction of a lease?

Answer 7

amount assessed on landlord (rental element) /life of the lease
x n/12 if taken on mid year
*trader paying the premium = trade income deduction

Question 8

Income from discretionary trusts - what % is it received and how is it treated?

Answer 8

It is received net of 45% (100/55) and is included in NSI and deduct amount paid from IT liability

Question 9

Income from life trusts - what % is it received and how is it treated?

Answer 9

It is received net of 20%/7.5% depending whether it is paid out of NSI, SI or DI - include in relevant column grossed up by 100/80 or 100/92.5, then deduct the amount paid from IT liability

Question 10

How can property losses be relieved?

Answer 10

The loss can be carried forward to offset against the first available profits of the property business.
(individuals only)

Question 11

List 5 types of exempt income

Answer 11

• Bet winnings
• Damages for personal injury
• Interest on National Saving Certificates
• Income from ISAs
• Premium Bond winnings

Question 12

What are the 4 tax advantages of FHL over normal rental relief?

Answer 12

• Profits are relevant earnings for pension calculations
• Capital allowances are available on furniture (instead of replacement)
• For CGT FHLs qualify for entrepreneurs relief, rollover relief and gift relief
• For IHT FHLs qualify for BPR