Property Income

Question 1

Definition of property income

Answer 1

Exploiting an estate, interest or right in over land as a source of rents or other reciepts

Question 2

Property income allowance

Answer 2

£1000

Question 3

What happens if the property is partly owed occupied and partly let

Answer 3

Any expenditure must be apportioned accordingly

Question 4

What is the tax reducer for mortgage

Answer 4

20% (only of interest part of mortgage)

Question 5

What are the allowable deductions from property income

Answer 5

The deductions that are allowed from property income are those incurred “wholly and exclusively” for the purpose of letting the property

Question 6

What are some examples of the allowable deductions on property income

Answer 6

• repairments and maintenance but not improvements
• insurance of property and contents
• council tax and rates
• rent ( if sub let)
• interest on a loan to purchase or improve property (20% tax reducer)
• costs of providing services to tenants eg cleaning
• management costs
• bad debts

Question 7

What happens to property loss

Answer 7

Is carried forward and used against first available property income

Question 8

In what instance would a reduction be allowed for fixtures and furniture

Answer 8

Replacement items

Question 9

Describe rent a room relief

Answer 9

• available to either owners or tenants who let furnished accommodation which is part of their only or main residence
• annual gross rents up to £7500 are exempt
• relief is per property
• when rent exceeds £7500 you can
  a) be assessed on gross rents over £7500
  b) be assessed under normal property rules

Question 10

Relief for certain capital expenditure is in the form of capital allowances on:

Answer 10

• plant and machinery used in repair, maintenance or management of the property
• conversion/renovation of vacant space above shops/ commercial premises to provide flats to let

Question 11

What is the rules regarding Furnished holiday let’s

Answer 11

1. Let on a commercial basis
2. Be available for let as holiday accommodation for at least 210 days in a year, be actually let for 105 days at least
3. Not be let to the same tenant for more than 31 consecutive days
4. Not in longer term accommodation for more than 155 days in the tax year

Question 12

If more than one property is let (furnished holiday let’s) what is the rule surrounding days

Answer 12

If every property satisfies the 210 rule but not all satisfy the 105 rule they can all be treated as holiday let’s if the average period of the let exceeds 105 days

Question 13

What are some advantages of rental property being regarded as furnished holiday let

Answer 13

1. Income is earned and personal premiums may be relieves against it
2. Capital allowances are available for plant and machinery including furniture
3. Business reliefs are available for CGT purposes

Question 14

Where the tenant carries on a trade or profession and pays a lease premium for business premises, what is the amount assess on the landlord and tenant as

Answer 14

Assessed of landlord as property income
Assessed on tenant business expense spread equally across the term of the lease

Question 15

Regarding lease premiums, what is the amount assessable as property income

Answer 15

The premium LESS 2% for each year of the lease except the 1st year

Question 16

What is the calculation of lease premium property income amount assessable

Answer 16

Premium = a
Less (2% x yr-1 x a) = b
Taxable property income = a-b

Question 17

What is the property income for the landlord

Answer 17

Amount assessed on tenant / duration of lease

Question 18

What is a lease premium

Answer 18

A lease premium is a lump sum payable to a landlord by a tenant when a lease is granted

Question 19

What is the definition of a trust

Answer 19

An arrangement whereby property is held by persons known as trustees for the benefits of other persons known as beneficiaries

Question 20

How is a trust created

Answer 20

• by deed
• terms of a will
• by the courts

Question 21

What are some types of trusts

Answer 21

Mixed trust
Accumulation trust
Interest in possession trust
Discretionary trust

Question 22

Who is liable for the payment of IT and CGT in discretionary and interest in possession trusts?

Answer 22

Trustees

Question 23

What are the main points when discussing “interest in possession trusts”

Answer 23

The beneficiary is entitled to income forms the trust as it arises
Often a different is entitled to the trust capital

Question 24

What are the main points when discussing “discretionary trusts “

Answer 24

Trustees have discretion

Question 25

How is a discretionary trust taxed

Answer 25

From the 6th of April 2024 trusts not exceeding 500 p.a are exempt from IT
TAX RATES:
NSI &SI : 45%
DVD: 39.35%
(Transfer is in net need to make gross)
(Does not apply to any income that has been used to fund admin expenses of the trust:
This income would be taxed
NSI & SI : 20%
DVD: 8.75% )

Question 26

In discretionary funds what type of income does the additional tax rates not apply to

Answer 26

Does not apply to any income that has been used to fund admin expenses of the trust:
This income would be taxed
NSI & SI : 20%
DVD: 8.75%

Question 27

How are interested in possession trusts taxed

Answer 27

Trustees are chargeable to income tax
No personal allowance
Tax rates:
NSI &SI :20%
DVD: 8:75%

Question 28

Give an example of an expense that is allowed as a charge on income

Answer 28

Property expenses

Question 29

When does admin expenses reduce income

Answer 29

After tax liability has been calculated
-> admin expenses are deducted from DVD income then SI then NSI

Question 30

What is all income treated as being received as, with beneficiaries to tax

Answer 30

Net

Question 31

How do you gross up net values assuming
NSI AND SI :20%
DVD : 8.75%

Answer 31

NSI AND SI: 100/80
DVD: 100/91.25

Question 32

What are some tax efficient schemes

Answer 32

Enterprise investment scheme
Seed enterprise investment schemes
Venture capital trusts
Individual savings account (ISA)
Child trust funds
Junior ISAs

Question 33

Describe Enterprise investment schemes

Answer 33

The Enterprise Investment Scheme (EIS) is a government-driven initiative designed to stimulate investment in early-stage businesses through venture capital. It serves as a significant source of capital for these companies while also providing attractive tax reliefs to the investors who support them.

Individuals who subscribe for newly-issued ordinary shares in”qualifying companies” may claim EIS relief
Relief takes the form of income tax reduction equal to 30% of the amount invested during the tax year
Investments of up to £2m p.a are eligible for relief (but any amount over £1m must be invested in “knowledge incentive” companies)
DVDs received on EIS shares are subject to IT but CG’s arising on disposal of EIS shares are exempt for CGT

Question 34

Describe Venture Capital Trust

Answer 34

Venture Capital Trusts
• A VCT is a listed company which broadly invests in companys that would be qualifying companies For ElS purposes
• Individuals who suscribe for newly- issued shares in a VCT may claim income tax relief
• Relief takes the form of a reduction in income tax payable equal to 30% of the amount invested in the tax year
• Investment limit is $200.000 per tax year
• VCT dividends are exempt from
IT & CEs on the disposal of VCT shares are exempt from CGT.

Question 35

Describe seed enterprise investment schemes

Answer 35

Seed Enterprise Investment Schemes

SEIS is designed to help smaller or newer businesses secure crucial funding to grow.

• investors who suscribe for ordinary shares in a “qualifying company” which is carrying on as a new business may claim SEIS relief
• Relief takes the the form of an income tax reduction equal to 50% of the amt invested during the tax year
• Investments up to 200,000 per year are eligible for relief
• the capital gain arising on the disposal of the shares is exempt from CGT

Question 36

Describe ISAs

Answer 36

Individual Savings Account
• UK residents 18+
• Max investment $20,000
for 24/25
• Cash ISAs & Stocks & Shares ISAs
→ Help to buy ISA
• Tax free 3000 for first home
• Closed for new applicants from 2019, existing account remains until 2029

→ Lifetime ISA
• can save £4000 per yr if under 40, until age 50, bonus 25% saved. Withdrawals before 60 charged 25% unless for 1st home

Question 37

Describe child trust funds

Answer 37

Tax free savings account
Children born before 1 sept 2002 or after £250 voucher
Abolished in 2011
Extra payments may be made
Matures on 18th bday

Question 38

Describe junior ISAs

Answer 38

Introduced Nov 2011
Children under 18 who don’t have a CTF
£9000 investment per year
No withdrawals until 18
16-18 yr olds can also hold ISA with the usual terms