Property Income

Question 1

What is Property Income

Answer 1

Rental income generated through letting of properties

Question 2

Property income is classified under which head of income?

Answer 2

Non saving income

Question 3

Is there any NIC to be paid on property income?

Answer 3

No

Question 4

Property income is taxed on cash basis or accrual basis?

Answer 4

-Usually cash basis.

accrual basis will apply if:
1) Rental income > 150,000 per year
2) Landlord is a company
3) Person elects for accrual basis

cash basis is good for small ppl, simple, avoids taxing unpaid rent

accrual basis is more accurate, good for companies

Question 5

Format for calculating taxable Property income

Answer 5

Rentals received xxx
Less allowed expenses (xxx)
Taxable Property Income

Question 6

Allowed expenses will be available for?

Answer 6

actual letting period and available for letting period.
If property was in private use, then expenses will not be allowed for that period.

Question 7

Allowed expenses include?

Answer 7

-Advertising
-Water tax, Local tax, council tax
-Repair expenses
-Insurance charge
-Bad debt
-Replacement expenditure (first time installment exp or improvement exp is not allowed)
-Capital expenditure done on infrastructure property is not allowed expense
-repair expense on unfurnished portion
-replacement outflows of furniture
-interest on loan

Question 8

Is interest on property loan an allowed expense?

Answer 8

For commercial property, yes its an allowed expense (eg. FHL, office, warehouse)

For residential property, not an allowed expense. (this restriction onlyapplies to indiviuals not companies)

for individuals: interest expense will be relieved as a 20% tax credit from tax liability (only for the months in which property was let out or available to let out)

this relief has no impact on basic rate taxpayers

Question 9

what is rent a room relief

Answer 9

if an individual lets out a room OR rooms from their PRINCIPAL RESIDENCE, such that letting was furnished then this relief will be available.

Rent a room relief allows the individual to claim allowed expense at higher of:
1- actual allowed expense allocated to that room
2- 7500 pounds

Question 10

what is a lease premium?

Answer 10

in normal letting, tenant pays rent against use of asset. they dont have right to modify or sublet the property.
in premium letting, tenant pays a lease premium along with normal rentals. this gives a right to sublet and modify property.

Question 11

how is lease premium assessed in taxation?

Answer 11

if premium paid is more than 50 years, property is treated as disposed.
if premium paid is less than 50 years, premium will be assessed in property income as well as CGT.

Question 12

how will lease premium below 50 years be divided into property income and CGT?

Answer 12

formula for CGT amount=
2%(n-1)Premium
n= number of lease years

Rest of the premium will be assessed as Property income.

Question 13

Premium - landlord and tenant perspective

Answer 13

Premium assessable in income tax is allowed expense for the tenant
(can be claimed in trading or property PnL)
No allowed exp if vacant or residential use.

and it is an income for landlord

Question 14

premium paid - allowed expense treatment if tentant is using property in business vs. subletting the property

Answer 14

if tenant is using property in business then allowed expense will be claimed from TRADING PNL
if tenant is subletting the property then allowed expense will be in PROPERTY INCOME.

Question 15

what is FHL- Furnished holiday letting?

Answer 15

normally letting is not considered a business so its not elligible for business reliefs like capital allowances, gift reliefs, BADR, BPR

however if a letting qualifies as FHL, it will be considered as a business activity.

Question 16

conditions for letting to qualify as FHL

Answer 16

-available for letting at least 210 days in a fiscal year
-actually let out atleast 105 days in a fiscal year
-Long letting period should not exceed 155 days in a fiscal year
(long letting means letting to a single tenant for 31 days or more)
-Letting should be furnished

Question 17

If letting qualifies as FHL, it’s impact will be

Answer 17

1) income will be considered UK relevant earning for pension contribution

2) asset installed in property will qualify for capital allowances

3) no restriction on residential property interest expense

4) FHL property will qualify as a business asset in CGT & IHT (Gift relief, BADR, BPR) will be available

5) If there will be a loss in FHL then that loss will become adjustable against that FHL’s future income only