Property Income
The income is liable to assessment as property income
· Property business profits arising from the rental or lease of property
· Profit arising from commercial letting of furnished holiday accommodation
· Premium received on the grant of a short lease
· Rental income received from the rent of a room scheme
Property business profit- Basis of assessment
The assessable income for each tax year is computed as:
| Rental income (accrual basis) Less: Related expenses (accrual basis) Assessable income | £ XX (XX) XX |
If the landlord lets more than one property, the assessable amount would be the aggregate of the profits and losses from each separate property. All calculations in the exam are made to the nearest month.
The accounts should be drawn up on the accrual basis. Thus the assessable income for 2009/10 is the rent due for the period 6 April 2009 to 5 April 2010, less the expenses payable for the same period.
Allowable expenditure
· Expenses must be incurred wholly and exclusively for the purpose of property business e.g. insurance, agent’s fees, other management expenses, repairs, interest on a loan to acquire or improve the property
· Irrecoverable debts (tenant lave without paying) are allowable
· Pre-trading expenditure (incurred in the 7 years before a business commences to trade)
· Revenue expenditure (repair expenses) is an allowable deduction but not cap[ital expenditure (improvement expenditure)
· Depreciation is not an allowable expenditure
· Capital allowance on plant and machinery used in a dwelling house can’t be claimed. CA known as the ‘renewal basis’ can be claimed for furnished letting
· Renewal basis: The renewal basis allows relief for the expense of renewing furniture etc. to the same standard. The original cost and the improvement element is disallowed
· Wear and tear allowance: the renewal basis is replaced by a “wear and tear allowance”
10% × (rent received- council tax- water rates)
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