Property income

Question 1

What is the default basis for property income?

Answer 1

Cash basis

Question 2

What is the threshold for using the cash basis for property income?

Answer 2

150k

Can elect to use accruals basis under this level

Under 150k assume cash basis applies

Question 3

What are the types of allowable deduction under Property income?

Answer 3

Insurance
Non-residential finance costs (EG mortgage interest)
Legal and professional fees
Landlord rates/taxes
Ancillary services (cleaning/gardening)
Repairs and maintenance
Fixed rate motor deductions
Only allow for periods available for rent

Question 4

Property income

P&M capital allowances

Answer 4

Only allow for P&M used for repairs and maintenance not for P&M used in property EG furniture

Question 5

Explain replacement furniture relief

Answer 5

No relief for initial purchase of capital domestic items,
However when replacing these items the replacement/repair costs are allowable
Note that the sales proceeds of the old item reduces the relief
Relief must be on like for like not available for improvements

Question 6

Relief on Mortgage repayments?

Answer 6

Never allowable

Question 7

Finance costs for residential property
What is the restriction?
How does it work?
How is it calculated?

Answer 7

Restricted to 20% tax relief
Initially ignored when calculating taxable income
Then is used as a ‘tax reducer’ when calculating basic rate income tax
Calculated as lowest of:
Finance costs in year and B/F
Property business profits
Non savings income less reliefs/PA
If lowest is not finance costs then difference is carried forward for next year calc

Question 8

Can the residential finance tax reducer be used to create a tax refund

Answer 8

No it cannot!

Question 9

Property allowance
What is it?
How can it be used for tax efficiency?

Answer 9

£1000 allowance
Rental income below automatically becomes nil
Rental income above:
Expenses more than allowance use expenses
Expenses less than allowance use allowance for tax efficiency

Question 10

How are property losses utilised?

Answer 10

They are carried forward to first available property income profits

Question 11

Rent a room relief
What is it?
What is the exempt income limit?
How can it be used most tax efficient?

Answer 11

Renting furnished room in main residence
£7500 1 homeowner
£3750 each for 2+ homeowners
If income over limit and expenses less than limit use limit as expense figure to reduce tax