Chapter 5: Property Income and the accrued income scheme Flashcards
What basis is rental / lease of a property
Cash basis
Allowable deductions
Wholly and exclusively are allowable
Chapter 3: Individual deduction, wholly, exclusively and necessary
Loose necessary from property income
Finance costs for a residential property
( Tax reducer )
Tax relief for finance costs in respect of residential property (e.g mortgage interest) is only given at the basic rate of 20%
Relief is given by deduction of 20% of the cost of from the taxpayers income tax liability
Capital expenditure exceptions for allowable expenditure
Cars
Assets used in residential property
Improving land and building
Repairs are not capital, and are allowable
Replacement furniture relief
Fixtures fixed to the property eg radiators and boilers do not qualify for relief
Relief is reduced by proceeds from the sale of the old asset
No relief for improvements
Eg if a washing machine is replaced with a washer drier, only the cost of the an equivalent washing machine is qualified for relief
Relief does not apply to furnished holiday lettings or to accommodation where rent a room relief is claimed. Furniture and furnishings in such properties qualifies for capital allowances
Property income - accruals basis
Individuals / partnership can opt in to use the accruals
Must use the accruals basis if property income receipts exceed £150,000
Irrecoverable debt is called an impairment loss
Property losses
Profit and losses are netted against each other
Overall loss, property income for that tax year is NIL
A loss is carried forward to set against the first available property profits
Rent a room relief
Furnished rooms in a main residence is tax free for first £7,500 a year
Cannot be self-contained flat in a house
Rent a room relief over £7500
Taxpayer can choose to be taxed:
On gross receipts less £7500
Or
Under the normal rental income rules (rent - exp)
Furnished holiday lettings = business
Treat as a trade with profits calculated for tax years
Losses can only be carried forward
Capital allowances on furniture (no replacement furniture relief)
-100% AIA then WDA
Income is net relevant earnings
Capital gains rollover, business asset disposal relief and gift reliefs are available
Conditions for FHL
Location: UK/EEA
Available: Over 210 days in the tax year
Occupied: Actually let over 105 days (average of 105 days a year for multiple properties)
Occupation pattern: Not let for longer term occupation of over 155 days. Longer term occupation is more than 31 days. Can let to the same person more than once if each let is not more than 31 days
Lease premiums (capital sum paid to secure a lease)
Prob 2 mark OTQ
Lease under 50 years - part of the premium is treated by the landlord as rent received in advance
Rent = premium * (51-Duration/50)
Premiums paid by traders
Annual deduction = Amount assessed on landlord / Life of the lease
Accrued income scheme
Exempt: UK Government securities (gilts) exempt from CGT
Gilts is a method of saving, can be bought and sold, buy a bond and you get paid interest biannually
accrued income scheme only applies if total nominal value is over £5000 at some time in the tax year
Accrued interest on the sale of gilts is taxed as savings income of the seller. The purchaser will not include this amount in savings income
