Osborne 2 : Property Income Flashcards
Property Income - Cash or accrual ?
over 150k gross rental income automatically taxed on an accrual basis
below 150 normally cash basis but can elect to use accrual
if accrual - in exam watch out for irrecoverable rent. - Deduct it from rental income
Rental Income notes for accruals basis (osborne):
Rent was 500 pcm due on 6th
Tenant paid on time April to Dec 2020.
Didn’t pay from Jan 2021 on and left on 6th March.
How did osborne calc this?
Made rent receivable of 11 months (tenant left 6th March so nothing was due in April … assume no notice period)
Made rent irrecoverable 2 months (Jan & Feb)
Insurance was different amount 2020/2021 so had to do 9 months of one amount and 3 months of the other.
NB: Insurance counted even in the empty month
To be allowable - property expense must be?
‘Allowable’ expenditure is expenditure that can be deducted from the renta income too arrive at the ASSESSABLE property income.
NB: Other expenditure may be quite proper for accounting point of view, just need to adjust for tax work.
Revenue rather than capital in nature (except some replacement items)
Wholly and exclusively for the purpose of letting
Mileage allowances?
car: 45/25 after 10K
motorcycle: 24/24
what about expenditure before renting out and in voids?
Generally allowable
EXCEPT when property used privately eg. F&F
‘Capital’ items such as white goods/furniture allowable?
Yes if its a Replacement
(So if buy flat unfurnished cannot expense these items first time)
Disposal costs are allowable (I think even for the original item)
If item is sold thiis amount must be deducted from new one.
Applies to furnished / unfurnished and cash / accruals
Property allowance basics
1000 per year (Total across all properties)
Alternative to deducting allowable expenditure.
Application of property allowance?
Up to £1000 gross income Automatically applied (But can change this)
Over £1000 gross income.
Can elect to use if required.
Any election must be made by 31/01 2 years after end of tax year. Ie. 1 year after submission deadline for the relevant year. (Not sure how this works perhaps can go back and change)
Choosing whether to use the property allowance.
Property allowance can only be claimed when NO other allowable expenditure is deducted.
If a profit was made…
Choose whichever is larger .. exp or allowance.
NB Allowance cannot be larger than the profit so no ‘loss’ can be generated.
For this reason
If a loss was made you might choose to use expenses even if less than £1000 so that you can generate a loss to carry forward.
Are costs connected with property purchase such as legal/prof fees & Stamp Duty allowable?
Nope. These are considered as Capital along with the purchase price
Building a garage / installing central heating where none existed ?
Allowable
No these are improvements.
Cost of renovations before renting out allowable?
No.
One argument is that purchase price would have been lower.
Other non-allowable property costs to watch out for
Depreciation of any kind relating to Capital expenditure.
Expenditure not connected with letting (eg. on a private part of the property)
If a property is lived in by family for 7M how to handle..
1 years insurance?
A repair bill?
Insurance 5/12 (Because the insurance covers a 7M period when property not available for rent)
Repair bill:
Depends on date - not allowable if while property occupied by family
Property loss rules
Use net for all properties.
If loss carry forward (not back) and set against future gains. (Must be property gains)
Relief for loss only available for commercial letting (ie. not for letting to a friend at reduced rate)
