Property Income

Is UK property income savings or non-savings income, and what is the basis of assessment for individual landlords and companies?

Non-savings.

Individuals: cash basis by default (rent received − expenses paid). Accruals by election

Companies: accruals basis always.

When must an individual landlord use the accruals basis, and what is the election deadline?

Receipts over £150,000 (pro-rated for a short period).

Election: 31 January, 22 months after the end of the tax year (same deadline as rent-a-room elections).

How are a tenant's security deposit and mortgage capital repayments treated in property income?

Deposit is not income until the landlord is entitled to keep it (returned amounts never taxed).

Mortgage capital repayments are not deductible.

How does an individual landlord get relief for mortgage interest on residential property?

Not deducted from property income. Instead a tax reducer of 20% × finance costs

Applies only to individuals (not companies), residential property only, and the loan need not be for buying the property.

A higher-rate landlord pays £4,000 of residential mortgage interest. What is the relief?

£4,000 × 20% = £800 tax reducer, not 40%.

What relief is available for furnishing a let property?

None for the initial cost. Replacement of Domestic Items Relief: cost of replacement − proceeds of old item + incidental costs. Excludes fixtures such as radiators.

A landlord replaces a single bed with a double bed. How much relief is available under Replacement of Domestic Items Relief?

Only the cost of an equivalent single bed (like-for-like cap).

Market value or Equivalent cost of old asset at replacement date
(-) Proceed of old asset

How can motoring costs be claimed in a property business?

Actual costs OR approved mileage rates, not both.

How is a property business loss relieved?

Carry forward only, against the first available future property profits. No carry back and no set-off against other income.

What are the rent-a-room limit rules?

£7,500 limit, halved to £3,750 each if someone else also lets in the same property. Individuals only, room in the main residence. Can elect to disapply the exemption.

If rent from rent-a-room exceeds the limit, how is taxable income calculated?

Choose the lower of:

(rent − allowable expenses)

(gross rent − £7,500 with no expenses)

What is lease premium?

Only relevant if lease term ≤ 50 years

A premium is partly treated as rent received in advance

When is part of a lease premium taxed as property income for the landlord, and what is the taxable amount?

Lease of 50 years or less.

Taxable = P − [P × 2% × (n − 1)]

The remainder is a capital amount dealt with under CGT.

Deduction from trader-tenant

Applies when the tenant pays a premium for a short lease and uses the property for a trade

How does a trader-tenant get relief for a lease premium paid?

Annual deduction = Landlord's property-income assessment ÷ life of lease (years) per annum, in addition to rent paid.

Time-apportion the annual deduction for the relevant period.

Is the trader's lease-premium deduction based on the gross premium?

No. It is based on the landlord's taxable/assessable property-income amount, after the 2% × (n − 1) calculation.