Ch6: Property Income

Question 1

Explain the Cash Basis and Accruals Basis of Assessments for Property Income?

Answer 1

(a) Cash Basis -
- Formula: [Rent Received - Expenses Paid in the Current TY]
- Only for INDIVIDUALS with rental income of <£150,000.

(b) Accruals Basis -
- Formula: [Rent Received - Expenses Payable]
- Individuals = use of income is £150,000+.
- Companies - must use this method.

Question 2

What are some Allowable Deductions when it comes to Property Income?

Answer 2

• Expenses incurred WHOLLY and EXCLUSIVELY for the purpose of the business.
• Repairs to Property
• Management Expenses
• Agents Fees
• Insurance
• NOT DEDUCTIBLE = Capital Expenditure.
• Relief is only given to REPLACEMENTS.

Question 3

What are the conditions for Furnished Holiday Lettings (FHLs)?

Answer 3

• Available to let for at least 210 days in the TY.
• Actually let out for at least 105 days in the TY.
• Tenants do not stay for more than 31 days.
• Losses can only be C/F against future profits.

Question 4

What is the maximum amount of income that is exempt from Property Income?

Answer 4

First £7,500 is exempt / tax-free.

Exceeds £7,500 =
(a) Normal Rental Expenses [Rent - Expenses].
(b) Elect to be Taxed on the Excess [Rent - £7,500].

Question 5

What is the formula to calculate Property Income using the CASH BASIS method?

Answer 5

Cash Basis -
[Rent Received - Expenses Paid in the Current TY]

Question 6

What is the formula to calculate Property Income using the Accrual Basis method?

Answer 6

Accruals Basis -
- [Rent Received - Expenses Payable]