Property Flashcards
What qualifies for rent a room relief?
From an income tax perspective, renting part of your only or main residence (not self contained units or unfurnished accommodation) may qualify for ‘rent a room relief’. This relief provides that as long as gross rent (before expenses and includes a payment related to the accommodation plus any additional goods and services connected to that accommodation) are not more than £7,500 per annum, the income is not subject to income tax. Where receipts are above this level, the landlord will have a choice. They can either be taxed on the normal basis – in other words income less expenses (with no rent a room relief) or can be taxed on the amount by which the gross receipts exceed £7,500 with no deduction for expenses.
A tenant could in some circumstances sub-let to a sub-tenant. In this case both the owner and the tenant would
have a maximum exemption of £3,750.
what types of property fall into the commercial property investment categoryand what makes it a good invesment to add diversification to a portfolio
This includes investment in shops, offices and industrial units like factories. In the past, performance of this asset class has
tended to follow a cycle and has moved in different directions to equities and even to residential property, making it a good asset for diversification within a portfolio.
Which types of investors usually invest in commercial property
Since only very wealthy investors could afford to buy diversified portfolios within commercial property, for most investors this is a sector in which they will invest only through collective funds. In addition to this, the sales process is slow and complex, suitable properties are not readily available and it is not easy (is at all possible) to segment commercial properties
What is the property income allowance?
Where property income is less than £1,000 (gross, so before expenses are deducted), it is exempt from income tax, and it
doesn’t need to be declared on a tax return either! If income is over £1,000 then a choice can be made to either deduct the £1,000 allowance from total gross property income
rather than deducting expenses.
Can property provide diversification in a portfolio?
Property prices tend not to follow the fortunes of business all that closely, meaning that an investment in property can
represent a good opportunity for diversification. Equally, rents are often fixed for a relatively long period of time,
giving a degree of security. Property is not, however, without risks and these risks have become apparent over recent years
What are the drawbacks of investing in property
► It is very illiquid – lots of money tied up in a single
investment that can be hard to sell
► It needs to be managed – tenants need to be dealt with,
repairs need to be made, rent needs to be collected. This is
either time consuming for the landlord or can be expensive
if someone else is paid to do it
► It is not guaranteed there will always be tenants (known as void periods – and periods with no tenants can be expensive if the property is subject to a mortgage
► The increase in stamp duty for second properties, introduced by George Osborne has made it more expensive to buy whilst recent changes in the way expenses
are relieved for taxation have made it less cost effective to hold.
► If an individual purchases a buy to let property in an area that they do not live in, they will probably need the expertise of a letting agency which will absorb a share of
their rental yield.
What should you focus on when purchasing rental properties
When buying property, the old maxim is location, location, location and there is no doubt this is a major factor.
Equally, the condition of the property and the type of property and its relative appeal to tenants are all factors.
Larger properties tend to produce a lower yield (this has been a question in the past), but equally where all property rises in value by 5%, the overall return on a larger property will be greater than the return on a smaller property.
When is stamp duty or SDLT applied?
Stamp duty land tax or SDLT is paid by the purchaser of property on land transactions in England. Payment is under self-assessment principles, but generally it is
handled by the solicitor who does the conveyancing for the buyer. The payment of tax is due 14 days from the ‘effective date’ of the transaction – generally the date
of completion, date of payment or possession, though again from the buyer’s perspective the tax is usually taken on completion and the conveyancer handles the rest.
The rate of SDLT due depends on the value of the transaction with high value transactions charged at a higher percentage
