Property and Investment Income

Question 1

Cash Basis

Answer 1

Income and expenses are accounted for when the cash is received or paid.

Question 2

Accrual Basis

Answer 2

Assessable income is the rent receivable in respect of the tax year, and deductible expenses are expenses payable in respect of the tax year.

A landlord can elect to use the accruals basis, and the accruals basis must be used if property income cash basis receipts for the year exceed £150,000.

Question 3

Allowable Expenses - Cash Basis

Answer 3

Allowable expenses are those of a revenue nature incurred by the landlord wholly and exclusively in relation to the letting of the property before, during or between leases:

• Insurance
• Management (e.g. accountancy and legal costs)
• Rent payable
• Water charges
• Council tax (residential property only) and business rates (commercial property);
• Repairs (but not if the purchase price was discounted to allow for repairs, or the property could not be let without the repair);
• Loan interest
• Motor expenses relating to property business, such as property visits

Question 4

Finance Cost Restrictions

Answer 4

For residential lettings, someone’s finance costs relating to their property is a disallowable expense.

To restrict the amount of tax relief available to landlords for the costs of financing residential property, for the tax year 2023-24 100% of the finance costs are “blocked”.

In place of the disallowed expense, the landlord will be allowed a finance costs tax reducer (tax credit) of 20% of the blocked finance cost, which may be set off against the income tax payable on the rental income. This essentially restricts the tax relief available to landlords for the costs of financing residential property to basic rate tax relief, so it does not affect basic rate taxpayers.