Property Income

Question 1

Property allowance

Answer 1

£1,000 per tax year

If property receipts do not exceed £1,000 the property income is not charged to income tax. Expenses in relation to property business are not deducted and no relief is available.

An election can be made for the relief not to apply

If property receipts exceed the allowance property income calculated as rental receipts less allowable rental expenses (the normal method)

Unless taxpayer uses alternative method which is rental receipts less the £1,000 property allowance.

Question 2

The cash basis

Answer 2

Default position so long as not more than £150,000 property receipts

An election can be made to use the accruals basis if desired

The election has to be made each year

Question 3

The accruals basis

Answer 3

Receipts exceeding £150,000 will use accruals basis including if not in money

Question 4

Allowable property expenses

Answer 4

Legal, professional and administrative costs

Interest paid (eg on loans to buy property) - restricted

Rates and taxes paid by the landlord

Ancillary services (eg cleaning, gardeningn)

Insurance for the property

Replacement of domestic items

Repairs and maintenance eg painting, redecoration

Fixed rate reductions for motor vehicles

Question 5

Approved mileage allowances

Answer 5

45p for the first 10,000 miles, 25p thereafter

Cannot be made if individual has previously claimed capital allowances in respect of that vehicle. Nor if it is a good vehicle or motor cycle and trader made a deduction under the cash basis when acquiring it

Question 6

Finance costs eg mortgage interest

Answer 6

Relief restricted to basic rate of income tax

50% of finance costs deductible from property income as allowable expenses

Remaining 50% are available as a basic rate reduction
Reduction will be the lower of 
50% of finance costs for the year
Property income for the tax year
adjusted total income

Question 7

Bad debt relief

Answer 7

If cash basis unpaid rent isn’t taxed anyway

If accruals no bad debt relief until written off

Question 8

Rent a room relief conditions

Answer 8

If rental income not more than £7,500 per tax year

• the income and expenses arising are ignored for income tax
• no property losses arise unless rent a room relief is set aside

If rental income is more than £7,500

• The normal property rules apply
• Or taxpayer can elect to be assessed under the rent a room rules on gross rents over £7,500

Limit halved if husband / wife or other co-owners