PT14 Intro to Property Income

Question 1

A UK property business is….

Answer 1

A business in which a person carries on for generating income from land in the UK

Question 2

When is the cash basis used?

Answer 2

The cash basis is used where gross property income does not exceed £150,000 in the tax year (reduced proportionately where the business is carried on for part of the year)

Question 3

When is the accruals basis used?

Answer 3

If the £150,000 limit is exceeded the accruals basis must be used

Question 4

Any elections?

Answer 4

Yes, you can make an election to use the accruals basis by first anniversary of 31 January following the end of the tax year

Question 5

What happens if you change basis?

Answer 5

An adjustment expense or adjustment income must be calculate. Where adjustment income arises on a change from cash to accruals basis it is spread over six tax years.

Question 6

What expenses are allowable? (general)

Answer 6

Expenses ‘wholly and exclusively’ for the letting business, such as repairs, insurance and council tax

Question 7

What about vehicles?

Answer 7

Either flat rate expense based on business miles (45p for first 10,000) or can claim relief for actual expenditure

Question 8

Capital expenditure

Answer 8

Depends if you are on accruals or cash basis

If on accruals capital allowances may be claimed on plant and machinery.

Under cash basis relief is given by deducting the cost of the asset when it is acquired, except in respect of cars where capital allowances can be claimed.

There is no relief for initial cost of furniture & equipment other than a furnished holiday let

Question 9

Implications of cash basis

Answer 9

No capital allowances other than on cars, relief given by deducting cost of asset when acquired.

Question 10

Replacing domestic items

Answer 10

Relief can be claimed for the cost of replacing domestic items used in a residential proeprty

Question 11

Mortgage interest

Answer 11

If it’s a commercial property or a furnished holiday let it is deductible in full from property income

If it’s a residential property it is eligible for basic tax relief as a reduction in basic tax liability at the lowest of three amounts

Question 12

Basic rate mortgage relief is available on the _____ of the following…

Answer 12

Lowest

• interest eligible for relief
• property income for the year less losses brought forward
• adjusted total income

Any interest which does not receive relief is carried forward

Question 13

Loan restrictions?

Answer 13

Interest on a loan to purchase a property is eligible for full relief provided it was taken out wholly and exclusively for the purpose of the property business.

Where funds are taken out of the property business, the interest relating to that part of the loan is not eligible for relief.

There is an exception where the property is first introduced into the property business provided the loan does not exceed the capital introduced into the property business.

Under cash basis there is a restriction where the total loan at the end of the tax year exceeds the value of the property when first brought into the business

Question 14

Property Losses

Answer 14

Profit and losses from all UK properties are pooled. If there’s an overall loss it can only be carried forward against future UK property business income.

Losses on nominal leases where landlord does not charge a full market rent are not allowable.