Property income

Question 1

What sources of income are included in property income?

Answer 1

• Rental income from land
• Unfurnished property rentals
• Furnished property rentals

Property income encompasses any income generated through the leasing or renting of land and residential or commercial properties, regardless of whether they are furnished or not.

Question 2

What are the key rules governing property income?

Answer 2

1. Property income from land and buildings is treated as a business.
2. All rents and expenses from multiple properties are pooled together, resulting in a single profit or loss for tax purposes.

Pooling income and expenses simplifies the reporting process, ensuring that all property-related transactions are considered together in tax calculations.

Question 3

What is the basis of assessment for property income?

Answer 3

If a landlord’s property income exceeds £150,000, they must use the accruals basis for assessment.

The accruals basis involves reporting income and expenses in the period they are earned or incurred, even if payments haven’t been made yet. This is required for higher-income property businesses.

Question 4

What are the 7 allowable deductions for property income?

Answer 4

• Incidental expenses
• Repairs
• Rates and council tax
• Rent
• Insurance and maintenance
• Approved mileage allowance
• Replacement furniture relief (like-for-like replacement)

These deductions reduce the taxable income generated by a property business, allowing landlords to claim costs that directly relate to the maintenance and operation of their properties.

Question 5

What should landlords consider about expenses that are allowable for accounting but not tax purposes?

Answer 5

Landlords using the accruals basis may claim capital allowances for plant and machinery used in maintaining the properties, but furniture provisions fall under replacement relief.

This distinction is crucial for maximizing tax relief, as only certain types of expenditures are eligible for capital allowances, while others like furniture fall under different relief provisions.

Question 6

How is property income calculated using the property allowance proforma?

Answer 6

Total property income: X

Less:

Allowable expenditure: X

Equals:
Assessable property income: X

The proforma provides a step-by-step framework for calculating the taxable property income after accounting for all allowable expenses.

Question 7

What is the property allowance and how does it work?

Answer 7

• For gross receipts up to £1,000, there is an automatic property allowance of £1,000.
• If receipts exceed £1,000, landlords can deduct the £1,000 allowance instead of expenses.

The property allowance simplifies tax obligations for landlords with lower income, offering a straightforward £1,000 deduction without needing to track detailed expenses.

Question 8

How does one account for property income losses?

Answer 8

• The profit or loss from all the properties will be added together so there is immediate loss relief in the tax year against other profits from other property.
• Overall losses are then carried forward until they are used up.

Question 9

What 4 tax planning strategies can help minimize property income tax liability?

Answer 9

• Spouses or civil partners with a lower tax rate should own the property.
• The partner with little to no income should own the property to maximize their personal allowance.
• Property losses should be used against future property income by ensuring the right party owns the property.
• Transfers of assets between spouses or civil partners do not trigger capital gains or inheritance tax liabilities.

Proper tax planning, particularly regarding ownership and the use of personal allowances, can significantly reduce property-related tax liabilities.