PT14 Intro to Property Income Flashcards
A UK property business is….
A business in which a person carries on for generating income from land in the UK
When is the cash basis used?
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)
When is the accruals basis used?
If the £150,000 limit is exceeded the accruals basis must be used
Any elections?
Yes, you can make an election to use the accruals basis by first anniversary of 31 January following the end of the tax year
What happens if you change basis?
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.
What expenses are allowable? (general)
Expenses ‘wholly and exclusively’ for the letting business, such as repairs, insurance and council tax
What about vehicles?
Either flat rate expense based on business miles (45p for first 10,000) or can claim relief for actual expenditure
Capital expenditure
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
Implications of cash basis
No capital allowances other than on cars, relief given by deducting cost of asset when acquired.
Replacing domestic items
Relief can be claimed for the cost of replacing domestic items used in a residential proeprty
Mortgage interest
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
Basic rate mortgage relief is available on the _____ of the following…
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
Loan restrictions?
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
Property Losses
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.