Chapter 3: Property Income

Question 1

What basis is landlords on (accrual or cash)

Answer 1

Cash

Assessed on the rental income received in the tax year

Question 2

How much does the landlord need to receive in rental income to be on the accrual basis?

Answer 2

over 150,000

If less, a landlord can elect to be on the accrual basis if they prefer

Question 3

Allowable deductions from property income

Answer 3

There are a number of expenses which can be deducted on a Cash Basis from property income to give a net property income including:

-Incidental expenses eg. maintenance, agent’s fees, legal fees, advertising and insurance
-Rates and council tax (effectively paid on behalf of the tenants)
-Rent paid to a ‘superior’ landlord
-insurance and management expenses
-Approved mileage allowance payments
-Replacement furniture (NO RELIEF FOR INITIAL PURCHASE)

Question 4

Replacement furniture relief

Answer 4

-Deduction for full cost of replacement

-Property does not have not to be fully furnished - applies to furnishings such as: Beds, TVs, Fridge & Freezers, carpets etc.

-Relief is only on like for like replacements

-Relief is reduced by any proceeds received on the sale on the furniture that is being replaced

Question 5

Assessable property income

Answer 5

Total property income less total allowable expenditure

Question 6

Expenditure which is not allowable

Answer 6

-Cost of property itself
-Improvements
-Renovations
-Depreciation
-Expenditure not relating to business

Question 7

Property allowance

Answer 7

In Ref material £1000

-if gross receipts less or equal to£1000, landlord automatically receives the property allowance

-if gross receipts more than £1000, landlord would calculate profits the usual way by deducting expenses - alternatively they can disregard expenses and deduct property allowance

Question 8

Losses

Answer 8

More than one property - profit or loss from the properties will be added together so there is immediate loss relief against other properties profits

No other properties - net result is a loss.

Property losses are carried forward and offset against first available profits of property business.

Balances are carried forward until they can be relieved

Question 9

Tax planning

Answer 9

-If marriage or civil partnership, it would be sensible if the for the spouse or civil partnership paying tax at the lowest rate to be the owner of the property

-If one spouse or civil partner has little to no income, it would be sensible for that person to own the property - using their personal allowance

-If one party has property losses to use, it would be sensible for them to own the property to ensure they receive enough property income to use