Property and Trust Income Flashcards
What is the default basis for property income?
Cash basis
When is the accruals basis used?
Property income exceeds £150,000
Property business is continued by a company
An election is made (by the tax year deadline of 31st Jan the following year)
How are finance costs treated?
They’re added back to the profits and allowed as a tax reducer at 20%
If the landlord incurs travelling expenses
They can deduct the actual motoring expenses or use mileage
If a property is let furnished
Replacement of these items are allowable
What is reolacement of domestic items relief?
The cost of replacing any furniture is deductible, less the proceeds if any. The cost of the iriginal is not deductible though.
Losses?
Losses are carried forward and used on the next available profits. Must be offset as soon as possible.
Lease premium on a lease is calculated on
Leases of 50 years or less
When a trader pays for a leasethey’re able to account for it by
Accounting for it each year. The amount they’re abke to include is the amount the landlord would treat as rent divided by the years of the lease
In order for a business to qualify as a FHL it must
Be in the UK or EU
Be available to be let commercially for 210 days per year and actually let for 105 days per year
Realisation of profit
The total of all lettings that last longer than 31 days must not exceed 155
No restriction for finance costs
Rollover relief, gift holdover relief and BADR are all available
Losses from a FHL can only be offset against
Income from the same FHL business
What if one FHL has too little days?
You can opt to average the dats over all FHL’s. If the days are still over 105 then FHL rules can still be kept
It is also possible to make an election for a rental property to still be FHL for up to 2 years after it would be disqualified
Rent a room scheme. -when must the alternative method be elected?
22 months after the year end, i.e 31st Jan the year after the deadline
A trust is a vehicle by which
Assets are legally owned by the trustees for the benefit of the beneficiaries
What are the two types of trusts?
Interest in possession - where income must be paid out to the beneficiary
Discretionary - Where income is distrubuted base don trustees discretion
Income from a discretionary trust is received
net of 45% tax, taxed as NSI
Income from a interest in possetion is paid out
net of 20% tax if paid out of NSI
net of 8.75% if paid out of dividends
If a minor recieves income from a trust
it is taxed on the parent unles sunder the £100 de minimis limit
Real estate invetsment trusts
Can elect for property income to be exempt from CT and CGT but must withold 20% BR tax on payments to shareholders that also mustn’t earn more than 10%
These distributions are then taxed as property income and not dividends and the amount received is grossed up on the return to reflect the gross amount paid
Any distribution from other sources of income are taxed as dividends
