Property income and Savings income

Question 1

Main types of property income

Answer 1

-rents
-lease premiums for short leases
- amounts receivable from rights of way, sporting rights etc.
- letting fixed caravans

Question 2

Exemption limit for property tax

Answer 2

• £1,000 0f property income per annum

Question 3

Allowable expenditure

Answer 3

Expenditure incurred wholly and exclusively for the purpose of a property business is deducted from property income

Question 4

Allowable expenses examples

Answer 4

• insurance
• the cost of services for tenants
• administrative and management costs
• business rates, water rates and council tax.

Question 5

How is interest paid on property treated?

Answer 5

• interest is treated as a tax reducer and is relieved at a basic rate (20%)
• Limited to the basic rate tax on the lower of:
  1. loan interest paid
  2. taxpayers property income
  3. taxpayers ‘adjusted total income’

Question 6

Pooling of property income

Answer 6

• when owning and letting more than one property, total expenditure is deducted from total property income to give a single business profit for the year

Question 7

Replacement domestic items relief

Answer 7

• claimed for the cost of replacing certain items provided for the use of tenants
• only when it is a similar item.

Question 8

Property losses

Answer 8

• when property income exceeds allowable expenses, the property income for the year is £will.
• any overall losses are carried forward and relieved against the first available property income arising in subsequent years.

Question 9

Lease Premiums

Answer 9

Single payment made by a tenant to a landlord on the grant of a lease.

Question 10

where are premiums arising on the grant of a “long lease” charged to?

Answer 10

• a lease more than 50 years are charged to capital gains tax

Question 11

where are premiums arising on the grant of a “short lease” charged to?

Answer 11

• a lease less than 50 years are partly charged to income tax in the tax year in which the lease is granted
• taxable amount of a short lease premium is equal to the amount of the premium, less 2% from each year of the lease except the first

Question 12

“Rent-a-room” relief

Answer 12

• letting furnished accommodation which forms part of their main residence, gross rents not exceeding £7,500 a year, is exempt from income tax

Question 13

“Rent-a-room” relief - gross rent exceeds £7,500

Answer 13

• taxpayer may choose to be assessed on either
  1. gross rents less £7,500
  2. gross rents less expenses

Question 14

how is income from furnished holiday lettings treated?

Answer 14

• treated for most purposes as trading income

Question 15

tax advantages of furnished holiday lettings

Answer 15

• income regarded as earned income for the purpose of determining entitlement to tax relief on pension contributions
• capital allowances may be claimed on furniture
• business capital gain tax reliefs available

Question 16

Definition of furnished holiday lettings

Answer 16

• uk property or EEA
• let furnished with profit
• available to let 210 days and actually let 105 days in tax year
• no longer-term occupation for more than 155 days (not let my the same person for more than 31 days)

Question 17

FHL Averaging

Answer 17

• owning two or more properties may claim that all these properties should be treated as FHL as long as their average number of days let is at least 105 days.
• must be made by 31st Jan

Question 18

Interest received

Answer 18

• classified as savings incoem
• first £5,000 of savings income in basic rate band is taxed at 0%

Question 19

How go you treat net interest?

Answer 19

Gross the interest by doing net interest x 100/80

Question 20

Dividends Received

Answer 20

• charged to income tax
• no expenses allowed against dividends
• first £1,000 paced at 0%
• Further rates in tax tables

Question 21

Individual Savings Accounts

Answer 21

• uk and 16+ may hold an ISA
• tax-free and may be cash ISAs or stocks and shares ISAs
• max amount you may invest a tax year is £20,000
• withdrawals made without loss of tax relief

Question 22

ISA allowance for spouse of a deceased ISA saver

Answer 22

• granted an additional ISA allowance equal to the value of the deceased persons ISA savings on death

Question 23

Enterprise Investment Scheme

Answer 23

• relief is an income tax reduction equal to 30% of the amount invested during the tax year.
• £2m investment per year are eligible for relief (£1m and over must be in knowledge intensive companies)
• dividends received on EIS shares are subject to income tax but capital gains arising on disposal are exempt from CGT.

Question 24

Seed EIS

Answer 24

• income tax reduction equal to 50% of amount invested during tax year.
• investments of up to £200,000 are eligible
• capital gain arising on disposal of the shares exempt from CGT

Question 25

Venture Capital Trusts

Answer 25

• listed company which invests in companies that would qualify for EIS
• reduction in income tax payable equal to 30% of the amount invested in the tax year.
• investment limit is £200,000
• VCT dividends are exempt from income tax and capital gains on disposal