Week 6 Part 1

Created by

Ellie Williams

Cards (31)

Definition of property income:
Rents
2. Lease premiums (if the length of the lease does not exceed 50 years)
3. Amount receivable in respect of rights of way, sporting rights, etc
4. Income from the letting of fixed caravans or permanently moored houseboats.
Only expenditure incurred wholly and exclusively for the purpose of property business can be deducted when computing property income
Most common expenditure include:
Repairs, maintenance and insurance
The cost of providing service to tenants
Administrative and management cost
Rent paid to superior landlord (if the property is sub-let)
Business rates, water rates or council tax ( if paid by the landlord)
Interest paid on a loan to buy or improve the property ( to be discussed further)
If the revenue from the property is not more than £150,000 for the tax year then the landlord can choose cash or accrual basis.
If the revenue is above £150,000 then the landlord has to use accrual basis
Interest paid on a loan to buy or improve the property.

From 2020-21 tax relief is restricted to basic rate (tax reducer) and interest will no longer be deductible when computing property income.
HMRC are replacing the deduction with a basic rate (20%) tax reducer, where the amount of tax payable on the rental income profit is reduced by 20% of the mortgage interest paid in the tax year.
In effect, this change means that landlords’ taxable income levels go up and they only receive basic rate tax relief on the mortgage interest they pay, even if they are a higher or additional rate taxpayer.
Cost of improvements such as: replacement of the roof, addition of the conservatory is not deductible as expense as they increase value and are Capital expenditure.
the costs of these investments might reduce the capital gains tax when selling the property.
Replacement domestic items relief:
The government lists several examples of what domestic items qualify for this new relief. These include:
Beds;
Carpets;
Crockery or cutlery;
Curtains;
Fridges, washing machines, etc;
Sofas.
It’s also well worth noting that you can only claim like for like replacements not improvements. Meaning, if you buy a fridge for £500, but when you come to replace it the same model is only £250. You would only be able to claim the £250 relief.
A new item is an improvement when:
it’s not the same or substantially the same as the old item
the functionally has changed (for example from a sofa to a sofa bed)
A new item is an improvement when:
you upgrade the quality or material of the item (for example you upgrade from synthetic fabric carpets to woollen carpets)
If the replacement item is a reasonable modern equivalent, for example a fridge with improved energy efficient rating compared to the old fridge, this is not an improvement and the full cost of the new item is eligible for relief.
If the allowable expenses are more than your rental income you will make a loss. Normally you can only offset that loss against any profits that arise from the same rental business in future years.
If more than one property is being let out, the income and expenditure from all properties should be added together to work out an overall profit or loss for the year. This means that expenses for one property can be offset against income from another property. If there is a loss from one property it’s automatically offset against the profits from another.
Rent-a-room relief

Rent a room provides up to £7,500 of tax relief to people letting out accommodation in their own homes.
Rent-a-room relief
It was introduced in 1992 to encourage individuals to make spare capacity in their homes available for rent.
Rent-a-room relief
The government intended this to increase the quantity and variety of low-cost rented accommodation, giving more choice to tenants and making it easier for people to move around the country for work.
Rent-a-room relief
From April 2019, the lessor must be living in the property at the same time as their tenant for at least some of the letting period.
Property allowance
Individuals who let out property are eligible for a property allowance of £1,000 in tax years commencing 6 April 2017 onwards.
Full relief
If your total rental income (before expenses) is less than or equal to £1,000, you do not have to declare it to HMRC and you do not have to pay any tax on it. You do not need to do anything for this to apply; it will apply automatically.
Partial relief
If your total rental income (before expenses) is more than £1,000 you can choose, when calculating your taxable rental profits, between deducting the property allowance from your rental income, instead of actual allowable expenses, and calculating your taxable rental profits in the normal way.
Rent-a-room relief is available for Airbnb-type accommodation as long as the conditions are met.
Furnished Holiday lettings (FHL)
you can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs’ Relief, relief for gifts of business assets and relief for loans to traders)
Furnished Holiday lettings (FHL)
you’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
Furnished Holiday lettings (FHL)
the profits count as earnings for pension purposes
To benefit from these rules, you need to work out the profit or loss from your FHLs separately from any other rental business.
Furnished Holiday lettings (FHL) are properties in the UK or in the European Economic Area (EEA), which includes Iceland, Liechtenstein and Norway.
Furnished Holiday lettings (FHL) require sufficient furniture provided for normal occupation and visitors must be entitled to use the furniture.
Furnished Holiday lettings (FHL) must be commercially let, meaning the owner intends to make a profit.
If a property is let out of season to cover costs but does not make a profit, the letting will still be treated as commercial.
Accommodation can only qualify as a Furnished Holiday lettings (FHL) if it passes all 3 occupancy conditions: pattern of occupation, availability and letting.
6.5% charged annually for POA late payments