Chapter 5 - Income from property

Question 1

What are the main 4 classes of property income?

Answer 1

1. Rents
2. Lease premiums
3. Amounts receivable in respect of rights of way, sporting rights etc.
4. Income from letting of fixed caravans or permanently moored houseboats

Question 2

When is property treated as earned income?

Answer 2

When the income derives from the commercial letting of furnished holiday accommodation. The distinction is important if the taxpayer is hoping to obtain tax relief on pension contributions.

Question 3

Types of expenditure likely to be deductible when computing property income: 6

Answer 3

“Wholly and exclusively for purposes of property business”

1. repairs and maintenance (not improvements) and insurances.
2. the cost of providing services to tenants
3. Administrative and management costs inc bad debts
4. Rent paid to superior landlord (sublet)
5. Business rates, water rates or council tax (if paid by landlord).
6. Interest payable on a loan to buy or improve the property concerned.

Question 4

What happens if gross property income is exceeded by allowable expenditure?

Answer 4

The taxpayer has incurred a loss and taxable property income for the year is £nil. The loss is carried forward and relived against the first available property income arising in subsequent tax years.

Question 5

Treatment of least premiums: 2

Answer 5

1. Premiums arising on the grant of long lease (50 years +) are not charged to income tax at all
2. Premiums arising on the grant of short lease (50 years or less) are charged to income tax in the tax year in which the lease is granted. However, the amount of the premium is reduced for this purpose by 2% for each year of the lease except the first year.

Question 6

What are the reliefs on premiums paid : 2

Answer 6

Short leases
1. If the tenant use the property for business purposes, they may claim annual deduction from trading profits. This is equal to the amount of the premium on which the landlord is charged to income tax, divided by the lease duration.
2. If the tenant sub-lets the property, and receives a premium form the sub-lease, then the assessable amount of the premium received is reduced by
Landlords income tax assessment on premium paid x (duration of sub-lease/duration of head-lease)

Question 7

FHL Conditions: 3

Answer 7

1. The property concerned is situated in the UK or elsewhere in the European Economic Area and is furnished with a view to profit.
2. The property is available for letting to the general public as holiday accommodation for at least 210 days in the tax year and is actually let for at least 105 days