Property Income Flashcards
What is Property Income
Rental income generated through letting of properties
Property income is classified under which head of income?
Non saving income
Is there any NIC to be paid on property income?
No
Property income is taxed on cash basis or accrual basis?
-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
Format for calculating taxable Property income
Rentals received xxx
Less allowed expenses (xxx)
Taxable Property Income
Allowed expenses will be available for which period?
actual letting period and available for letting period.
If property was in private use, then expenses will not be allowed for that period.
Allowed expenses include?
BIRR AWWI
B-Bad debt
I-interest on loan
R- repair expenses on unfurnished portion (they maintain income generation, while capex enhance value ) replacement expenditure (excluding capital improvements, those can be considered for CGT)
R–replacement outflows of furniture
A-Advertising
W-Water tax, Local tax, council tax
I-Insurance charge
No improvements
Is interest on property loan an allowed expense?
For commercial property, yes its an allowed expense (eg. FHL, office, warehouse)
For residential property, not an allowed expense. (To promote housing affordability)
Instead of allowed expense, individuals can receive a basic tax credit of 20% on their interest expense .(only for months in which property was let out or available)
this relief has no impact on basic rate taxpayers
Companies can still deduct it as an allowed expense.
what is rent a room relief
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
what is a lease premium?
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.
how is lease premium assessed in taxation?
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.
how will lease premium below 50 years be divided into property income and CGT?
formula for CGT amount=
2%(n-1)Premium
n= number of lease years
Rest of the premium will be assessed as Property income.
Premium - landlord and tenant perspective
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
premium paid - allowed expense treatment if tentant is using property in business vs. subletting the property
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.
what is FHL- Furnished holiday letting?
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.
