Chapter 3 - Property Income Flashcards
3 ways of calculating property income?
1) Rental income - property allowance
2) Rental income - allowable exp paid (cash basis)
3) Rental income receivable - allowable exp payable (accruals basis)
What is the property allowance?
£1,000 per tax year
What is the threshold for property income to not be taxable?
£1,000 or less
What is the threshold to apply the cash basis?
Property receipts not exceeding £150,000
What constitutes allowable expenses?
Revenue expenditure, e.g. Legal/prof/admin costs Interest paid on loans to buy/improve non-resid property Rates and taxes paid by landlord Ancillary services provided by landlord Insuranace on property Replacement of domestic items Repairs and maintenace
What is the threshold to apply the accruals basis?
Rental receipts > £150,000
What needs to be considered when starting/ceasing to use the cash basis?
Property income requires adjustments to ensure receipts/payments are only taxed/deducted once for tax purposes.
Are you allowed capital allowances on capital expenditure incurred related to property income?
Only on the cost of plant/machinery used for the repair and maitnenace of the property, e.g. ladders and lawn mowers.
NOT furnishings, sofas, cookers etc.
How does replacement relief for domestic items work?
Replacement of domestic items can be treated as an ALLOWABLE expense.
Includes furtniture, furnishings, appliaces and kitchenware.
Amount of deduction = amount spent on replacement (no imporvement amounts) - proceeds from sale of old item plus costs of disposal of old item
Fixtures integral to the property, e.g. baths, toilets, washbasins, don’t qualify for this relief, but replacement cost of these is deductible as a repair to the property itself.
How are finance costs (interest) dealt with regarding property?
Relief for finance costs on letting of RESIDENTIAL properties is restricted to the basic rate of income tax.
Applies to mortgage interest, interest on loans to buy furnishings, and fees for taking out/repaying mortgages/loans.
Receiving this relief removes availability of the property allowance.
What is the relief for finance costs on residential property?
20% tax reducer on the lower of:
- Finance costs for the year (+any b/f)
- Property income for tax tear (using any b/f property losses)
- Adjusted total income (taxable NSI)
Tax reduction cannot create a refund.
If deduction is limited by property income or adjusted total income, remaining finance costs can be c/f.
- Tax reducer goes in at end of computation.
How are property losses dealt with?
ZERO in IT computation.
Loss is c/f to offset against first available future property income (no limit to time to c/f).
What is Rent a Room Relief (RARR)?
Available on letting out of a furnished room. If Rental income is £7,500 or less: - Ignored for tax - No property losses arise If Rental income > £7,500: - Either automatic position - Or deduct RARR amount (7,500) RARR shared where people share a home. Can't have both RARR and property allowance!
