Property and Investment income

Question 1

What basis do we calculate property income?

Answer 1

On the cash basis (to the nearest month)

Unless property income receipts exceed £150,000 for the tax year, then election for accruals basis must be made.

All property income except FHLA aggregated.

Question 2

What is the proforma for calculating property income?

Answer 2

Rental income received 
Less:
Insurance
Agent Fees and other management expenses
Repairs/replacements/redecorating
Interest on a loan to acquire or improve NR property
Motor Vehicle running cost and CA or AMA
Pre letting expenditure (7 yrs)
Cost of replacing furniture and furnishings (not initial and no improvements)  (can have replacement cost less proceeds from disposal of initial item )

Assessable property profits

Question 3

What is replacement domestic items relief?

Answer 3

A deduction is allowed for the the replacement of a domestic item (furniture, appliances, carpets)

Replacement cost. x
Less Disposal proceeds of assets. (x)
Replacement domestic items relief x

Question 4

How do we calculate the finance costs incurred?

Answer 4

Interest at the basic rate is an allowable deduction against the income tax liability (not property income)

Question 5

What are the conditions for Furnished holiday accommodation?

Answer 5

• In UK or EEA
• Let on a commercial basis
• Let furnished
• Available for > 210 days
• Actual let > 105 days
• Not normally let for long term occupation (ie 31 days to same person)
• Total of long-term occupation < 155 days in 12 months.

Question 6

What are the advantages of FHLA?

Answer 6

• Relevant earnings for personal pension contributions
• Finance costs are allowable
• Capital allowances available inc AIA if accruals basis
• Deduction for cost of P&M inc future and furnishings if cash basis (instead of replacement domestic item relief)
• Business Asset disposal relief for CGT
• Rollover relief for CGT
• Gift holdover relief of CGT

Question 7

What is the rent a room relief value?

Answer 7

When an individual lets furnished accommadation in their main residence.

If gross rental income is < £7,500 its exempt

If >£7500 can chose to deduct expenses or rent a room relief from rental income to arrive at profit.

Question 8

What’s the formula to calculate premium received?

Answer 8

Property income = Premium x (51-n)/50

where n is number of years of the lease.

Question 9

What is REIT?

Answer 9

Real Estate Investment Trust gives investors the opportunity to invest in a quoted property business set up as an investment trust.

Question 10

What are the tax implications of a REIT?

Answer 10

Dividends received are not treated as dividend income. Instead:

• Treated as property income
• Taxed as non savings income (other income)
• Received net of 20% tax.

REIT - 100/80 (Think RESPECT)

Question 11

What are the IT tax consequences for EIS?

Answer 11

Income Tax relief - 30% of amount subscribed deducted from IT liability.

Dividend income - Taxable

Question 12

What are the IT tax consequences for SEIS?

Answer 12

50% of amount subscribe deducted from IT liability

Dividend income taxable

Question 13

What are the IT tax consequences for VCT?

Answer 13

30% of amount subscribed deducted from IT liability

Dividend income exempt for investments up to £200,000 pa