property income

Question 1

When do you calculate property income using the cash basis and accrual basis?

Answer 1

Cash basis when the property income is less than 150k (but can elect to use accruals)

Accrual basis when it is higher than 150k

Question 2

How much is the property allowance and when should it not be applied?

Answer 2

The property allowance is 1000 GBP and can be applied to an individual’s property income.

You cannot deduct the property allowance if you deduct the allowable expenses. You can choose whether to deduct one or the other but not both

Question 3

When applying the property allowance, what must you not do?

Answer 3

Applying the property allowance it cannot create an overall property allowance

Question 4

For property income, is “legal, admin and prof costs” an allowable expense?

Answer 4

Yes

Question 5

For property income, is “interest paid to non-residential property” an allowable expense?

Answer 5

Yes

Question 6

For property income, are “rates and taxes paid by landlords” an allowable expense?

Answer 6

Yes

Question 7

For property income, is “ancillary services provided by landlords” an allowable expense?

Answer 7

Yes

Question 8

For property income, is “insurance costs” an allowable expense?

Answer 8

Yes

Question 9

For property income, is “replacement of furniture and appliance costs” an allowable expense?

Answer 9

Yes

Question 10

For property income, are “repairs and maintenance” costs an allowable expense?

Answer 10

Yes

Question 11

Are costs for motor vehicles used in a property business? If so, how does this work?

Answer 11

You may only claim expenses for vehicles in relation to the business miles incurred (no other expenses), as a fixed rate deduction.

You can get 45p per business mile for the first 10k miles and then 25p per mile after. Motorbikes get 24p. THE RATES ARE IN THE TEXTBOOK. MUST ON DEDUCT MILES USED FOR BUSINESS.

Question 12

Can you claim capital allowances on cars if you claim via the fixed-rate mileage scheme?

Answer 12

No - you can only claim one or ther other.

Remember if you take the FRMS you cant deduct any other expenses related to the use of a car.

Question 13

Is “interest incurred on residential or non-residential properties” an allowable expense? How are they treated?

Answer 13

Interest on non-residential properties are an allowable expense.

Interest on residential properties are not allowable expenses. They will be tax reducers. This means they will reduce the tax liability figure after it is calculated

Question 14

How to calculate the tax reducer of interest incurred from residential property?

Answer 14

20% of the lower of:

• Finance cost for the year plus any finance cost carried forward
• Property income for the tax year (after deducting any brought forward property losses)
• adjusted total income - the income (after losses and reliefs, and excluding savings and div income) that exceeds the personal allowance

Question 15

How to treat bad debt in property income calculations?

Answer 15

Only applicable for cash on an accrual basis. Taxpayers can claim relief by deducting the bad debt expense from property income if the debt is written off

Question 16

How to treat capital expenditure for property income?

Answer 16

The cost of replacing furniture and appliances is deductible as an expense, but not the initial cost of providing them

Question 17

How to calcualte the deductible expense for replacement furniture or appliances? What is the golden rule for this?

Answer 17

The replacement must be like for like, upgrades are not allowed albeit technological improvements are okay.

The allowable expense is: Replacement costs plus costs of disposal, less the sale proceeds from the old item.

Question 18

How to treat property losses?

Answer 18

If expenses are greater than property income, then property income will be 0 for the year. there will be no -ve amount which reduces the overall taxable income.

Property losses will be carried forward and reduced against the next available property income.

Question 19

What is rent a room relief and when can it be claimed?

Answer 19

An allowance of £7500 can be claimed when a taxpayer rents out a part of their own residence.

You cannot cliam rent a room relief if you claim actual expenses incurred. You can only claim one or ther other.

Claiming this cannot create a property loss.

Question 20

Can you claim the property allowance as well as the rent a room relief?

Answer 20

No, you can only claim one or the other.