Chapter 3 &4 Flashcards
What are the 3 ways to calculate property income
When is each used
1) rental income less the property allowance of 1000
Used when allowable expenses < 1000
2) rental income received less allowable expenditure (cash basis)
Used as default for individuals
3) rental income receivable less allowable expenditure payable (accruals basis)
Used when rent received > 150k, elected or a company
What are 8 examples of allowable property expenses
Legal professional and admin costs
Interest paid on loans to buy or improve NON RESIDENTIAL property
Rates and taxes paid by the landlord eg council tax and water rates
Ancillary services provided by landlord eg cleaning, gardening
Insurance of property
Replacement of furniture and furnishings
Repairs and maintenance
Fixed rate reductions for motor vehicles used in property business - 45p for first 10,000 miles and 25p thereafter
What are the 2 types of capital expenditure which you can get property income relief from
Capital allowances - only available on cost of plant and machinery used for repair and maintenance of the property (as AIA)
Replacement relief - cost of replacing domestic items as allowable expense - however only cost of replacement is allowable not the purchase of original item
How do you calculate replacement relief
Which assets do not qualify for the relief
Amount spent on replacement item (not including amounts that represent improvement)
LESS
proceeds from the sale of the old item
PLUS
Cost of disposal of the old item
Fixtures which are integral to the property and not normally removed if sold eg boilers. However here replacement cost would be treated as a repair to property itself
What happens if a loss arises from property (individuals only)
No taxable property in the current year
Loss is carried forward and set, as far as possible against the first available future property income
How does rent a room relief work
If income less than 7,500 per tax year
- income and expenses arising in relation to letting are ignored for income tax
If income more than 7,500 per tax year
- normal property income rules apply
- alternatively the taxpayer can elect to be assessed under the rent a room rules on gross rents in excess of the rent a room limit of 7,500
What are the two types of pension schemes
Occupational schemes
- run by an employer for a group of employees
Personal schemes
- pension scheme run by a pension provider and open to any individual to join
What are the two types of occupational pension schemes
Defined contribution (money purchase)
- pension benefits linked to value of investments made with pension contributions
Defined benefits
- pension benefits linked to level of earnings of the scheme member eg final salary pension schemes - VERY RARE
What is the age limit to be able to get tax relief on pension contributions
75
What is the limit on individuals gross contributions
Maximum amount of
3,600 (not working)
and
relevant earnings of individual (employment income + trading profits)
What is the annual allowance for pension relief contributions
Overall limit on tax relievable contributions to a pension fund
Max of 40,000 per annum, any unused allowance carried forward for up to 3 years
High earners have the annual allowance reduced
What is the minimum age you can access their pension
55
How much is the tax free amount you can take out as a lump sum
25% of lower of
Fund value
Lifetime allowance (1,073,100)
If a lump sum is above the lifetime allowance then what is the tax charge
A lifetime allowance charge of 55%
What happens if amounts vested to provide pension income are over the lifetime allowance
Lifetime allowance charge of 25%
AND
Pension income taxed as NSI when received
