PT15 Property Income - Further Aspects

Question 1

Overseas property business income - explain the rules

Answer 1

Calculated in the same way as UK property business
income.

Not possible to mix UK and non-UK losses. Overseas property business losses are carried forward against future overseas property income.

An overseas property business is a separate property business when considering whether the cash basis or the accruals basis applies to determine taxable profits.

Question 2

Furnished Holiday Lets are lets which satisfy what conditions?

Answer 2

• Furnished.
• UK or EEA.
• Available for let for at least 210 days.
• Actually let for 105 days (the ‘letting’ condition).
• Longer-term occupation not more than 155 days (longer-term occupation is a continuous period of more than 31 days).

Question 3

What if longer than 105 days in one furnished holiday let but shorter in another?

Answer 3

The letting condition can be met by making an election to average the periods of occupation of any or all the FHLs owned by a taxpayer (separate elections for UK and EEA properties).

Question 4

What if a property qualifies as an FHL in one year but fails the letting condition in the next year?

Answer 4

an election can be made to treat the property as an FHL in the second year (and third year if necessary) provided there was a genuine intention to meet the letting condition.

Question 5

What are the advantages of a property being a furnished holiday let?

Answer 5

a. Interest on loan to purchase an FHL can be deducted in full from the rental income.
b. Income from FHLs qualifies as earnings for pension purposes.
c. Relief is available for capital expenditure in respect of furniture, fixtures and equipment (as a deduction from income under the cash basis and via capital allowances under the accruals basis).
d. Various capital gains tax reliefs are available on disposals of FHLs (ie rollover relief, gift relief, business asset disposal relief).

Question 6

POOLING rules

Answer 6

• Pool UK with UK
• Pool overseas with overseas
• Pool UK FHL with UK FHL
• Pool overseas FHL with overseas FHL

Question 7

How to deal with losses?

Answer 7

Where overall result is a loss:
* Insert a figure of nil on the property income line; and
* Carry the loss forward to be used against property income in future years
* UK property loss can be used against future UK property income (or future UK FHL)
* Overseas property loss can be used against future overseas property income (or future overseas FHL)
* UK FHL loss can only be used against future UK FHL income
* Overseas FHL loss can only be used against future overseas FHL income

Question 8

What if you have a non resident landlord?

Answer 8

If rent is paid to a non-resident landlord, the tenant/agent must withhold basic rate tax.

However, the landlord can apply to receive the income gross if they have a good tax record and agree to come within self-assessment

Question 9

Premiums are received when a landlord grants a lease to a tenant. If the lease is a long lease (more than 50 years) what are the income tax implications?

Answer 9

None

Question 10

If a short lease (not exceeding 50 years) is granted, part of the premium is taxed as property income. How is this calculated?

Answer 10

Property income part is:

P − [2% × P × (N − 1)]

P = premium
N = number of years on the lease

Think of this as: one less than number of years left on the lease multiplied by the premium multiplied by 2%. That’s your capital part.

Then you just knock that off the premium to give you the income part.

Question 11

What if the tenant grants a sub-lease?

Answer 11

They will receive a premium. The amount taxed on them
under property income can be reduced by a proportion of the premium they paid when they were granted the head-lease:

Property income for landlord × Length of sub-lease/Length of head-lease