Personal tax planning Flashcards
How are finance costs treated with regards to long term rental properties?
A finance cost reducer is created where the finance cost is multiplied by 20% and the amount is then deducted from the property income tax that has been calculated.
How is rental income treated for an individual?
Rental income is treated using the cash basis unless the rental income is above £150,000.
What is replacement of domestic items relief?
This is where the cost of replacing furniture is deductible (net of proceeds of selling the old furniture)
What are the conditions for a furnished holiday letting?
Accommodation must be in EEA and available to public for 210 days a year.
Must be actually let for 105 days a year, within 210 day period.
Any tenant that leases property for more than 31 days cannot lease for more than 155 days.
What are the advantages of having a FHL?
Income qualifies as part of relevant earnings for pension relief.
There is no restriction for finance costs.
Replacement furniture relief.
Rollover relief, gift relief and BADR are all available on disposal of the property.
Loss relief may only be offset against other FHL businesses.
How are discretionary and income in possession trusts received?
Discretionary trusts are received net of 45% tax. It needs to be grossed up for the income tax computation by multiplying by 100/55 and then you deduct the tax already suffered from the tax payable figure. Discretionary trust income is always treated as non savings income.
Possession trusts are received net 20% of tax and must be grossed up by multiplying 100/80. If it is paid out of dividend income it will be received by the beneficiary net 7.5% of tax and must be grossed up by multiplying 100/92.5.
How are REITS treated?
REIT’s are real estate investment trusts and a business can elect for their property income to be exempt from corporation tax. However when property income is distributed from the company it must be extracted net of 20% tax i.e. must be grossed up by 100/80.
If the business has any income generated from non property activities then this income can be distributed via dividends and taxed via the normal dividend rules.
