Property & Other Investment Income

Question 1

What is the percentage of finance costs that are tax deductible for rental property/repairs?

Answer 1

25% is tax deductible.

Question 2

What is replacement furniture relief and when is it available?

Answer 2

Replacement furniture relief is available on furnished rental properties and covers the whole cost of the replacement furniture.

If the replacement is an improvement, relief will only be given for the value of an equivalent item.

Question 3

What relief is available for FHL’s? Capital Allowances or Replacement Furniture Relief?

Answer 3

Capital Allowances

Question 4

When can a rental loss be offset?

Answer 4

Only against future rental profits.

Question 5

What are the three eligibility conditions of a Furnished Holiday Letting (FHL)?

Answer 5

1. Must be in the EEA & available for 210 days a year for public letting.
2. Accommodation must actually be let for 105 days within the 210 days (i.e 50% of the time)
3. Be in the same occupation for between 31 days and 5 months.

Question 6

What are the advantages of having an FHL?

Answer 6

1. Income qualifies as part of relevant earnings for pension relief.
2. There is no restriction for the deduction of finance costs.
3. Rollover relief, gift relief and entrepreneurs relief are available upon disposal of the property.

Question 7

When can FHL losses be offset?

Answer 7

Only against income from the same FHL business.

Question 8

What is the formula for rental income assessment?

Answer 8

Premium
Less (2% * (n-1) * Premium

where n = no. years on the lease

Question 9

For a short lease, is part of the premium received by the landlord treated as rent received in advance or in arrears?

Answer 9

In advance.

Question 10

How long must a lease be for it to be considered a short lease?

Answer 10

50 years or less

Question 11

What are the two parts of the payment that a new tenant will pay?

Answer 11

A one off premium and annual rent.

Question 12

If a trader has paid a premium for the granting of a short lease, they may deduct what amount against their trading profit?

Answer 12

Rental assessment on lessor / Life of Lease.

Question 13

How much is rent a room relief?

Answer 13

up to £7,500

Question 14

What are the two ways in which rent a room relief may be claimed?

Answer 14

1. Rental income - £7,500

2. Rental Income - Rental expenses.

Question 15

What is the accrued income scheme?

Answer 15

An anti-avoidance scheme to prevent tax payers converting income to capital when selling securities.

Question 16

How is interest accrued upto the date of sale treated?

Answer 16

Securities sold cum interest include an element in the proceeds for the interest payment sold.

The interest accrued is treated as savings income.

Question 17

How does the buyer receive relief for the accrued interest when buying securities?

Answer 17

Relief will be given against the next interest payment received.

Question 18

Upto what value is the Accrued Income Scheme not applicable.

Answer 18

Where the value of the securities are less than £5,000.

Question 19

How is a REIT dividend taxed if it is paid out of rental income?

Answer 19

Taxed as normal NSI property income at 100/80 gross up.

Question 20

How is a REIT dividend taxed if it is paid out of normal profits?

Answer 20

Taxed as normal DI.

Question 21

What type of profits are most associated with a tax exempt Real Estate Investment Trust?

Answer 21

Rental Profits and Trade & Rental Properties.

Question 22

How is income from discretionary trusts received?

Answer 22

Received net of 45% tax (therefore gross up by 100/55)

Question 23

What type of income does discretionary trust income fall under? NSI, SI or DI?

Answer 23

NSI

Question 24

How is income from an interest in possession trust paid for NSI, SI & DI?

Answer 24

NSI & SI - net of 20% tax

DI - net of 7.5% tax