Property Income

Question 1

Explain cash and accruals basis

Answer 1

Where an individuals gross rental income does not exceed £150,000 the default is for the rental profits to be calculated on a cash basis. Income is inlcuded when it is received and expenses are deducted when paid.

An election can be made for profits to be calculated on an accruals basis. Income and expenses are relating to the tax year are taken into account

Question 2

Finance interest how is relief given

Answer 2

Mortgage interest is not an allowable expense when calculating rental profits.

However some relief is given.This is restricted to a deduction from income tax liability at the basis rate 20%. This is a tax reducer

The amount eligble for relief at 20% is the lower of:
Rental profits
Adjusted total income (net income - savings - dividend income - PA) If the interest payment is restricted any other amount can be carried forward