UK CT - Property Income

When is a company dealing in property considered a trading company?

IF they are a property development company:

• Property is held as trading stock

• interest on loans to finance the development is an allowable trade expense

• SSE may be available on the disposal of shares if the conditions are met

When is a company dealing in property considered an investment company?

• If they hold their property as fixed assets

• interest on loans are treated as NTLR debit

• SSE will not be available on the disposal of shares in an investment company

• Holding property to yield a return (rental income) is an investment activity

What revenue expenses are allowable for property income?

• Advertising

• Rent collection

• Insurance

• Gardening

• Maintenance

• Replacement of domestic items relief

What is a “long lease“ and what is the treatment for it?

A long lease is one that is greater than 50years in length.

Premium is treated as capital proceeds.

What is a “short lease“ and what is the treatment for

It is a lease granted for less than 50 years.

It is deemed to consist of 2 element:

1. Rental income - can be deducted as an allowable expense over life of lease

2. Capital proceeds - used to calculate gain or loss on a part disposal of the lease

What is the difference between improvements and repairs?

Repairs

Restores an asset to its original state by renewal or replacement (e.g. roof)

Improvements

Replacing / upgrading an asset.

How is the cost of repairs treated int he the comp?

If replacement is the same or substantially the same as the old one, then the cost is deductible in full.

If the item is not substantially the same, then only the amount that would be for the same item is allowed.

What is the treatment for the interest on a loan taken out to purchase a rental property?

It is not an allowable expense and therefor can’t be deducted from the income. Instead, it is treated as a non-trading loan relationship expense under the loan relationship rules.

What are the conditions that need to be met for a company that is renting out their surplus business accommodation for it to be treated as trading income instead of property income?

• Accommodation is temporarily surplus (used/acquired within last 3 years in trade, will be brought back into use of trade & letting doesn’t last more than 3 years)

• Accommodation is not held as trading stock

• The surplus accommodation forms part if a building where the rest is used for trading purposes

• receipts are relatively small

How do you calculate the taxable amount on short leases?

Premium received * [(50 - (n-1)) / 50]

n = length of the lease in years