Business property Income Rental Income Rental Income 1 Basis of Assessment (BOA) (a) Rental income from all

properties let is added together. (b) Rental income is calculated on accrual basis.
(c) Expenses deductible As for TAP especially Insurance, Agents fees and other management expenses & repairs. Specific bad debts allowed If tenant leaves without paying outstanding rent, that amount due can be deducted. Pre- trading expenses are allowed.

Lease premium on Short Lease (< 50 yrs)

(d) Interest on loan used to acquire or improve rented property is not allowed. Instead the interest is allowed under
Investment income.

2
(i)

Rental income types (4)

Furnished letting

BOA as above A wear and tear allowance of 10% is given to replace Capital allowances (No capital allowances on P& M and IBA). Wear & Tear Allowance calculated as follows: $ X (X) (X) Y W

Gross Rent Less (i) Council tax (ii) Bad Debts Net rent Wear & Tear 10% of Y Example 1

G Ltd makes up account to 31 March The company owns a furnished letting that is let out at an annual rent of &3,600, payable monthly in advance. During the year ended 31 March 2011, the company incurred the following expenditures: $ May 10 June 10 Nov 10 May 11 Replacement of old single-gazed window wood windows with new UPVC double gazed windows 2,000 Insurance for the year from 1 July 2010 (Insurance for the previous year to 30 June was $420) Drain clearance Redecoration (work completed in March 2011) 480 380 750

The tenant vacated the property during June 2010 without having paid the rent due for June. G Ltd was unable to trace the defaulting tenant but managed to let the property to new tenant from 1 July 2010. Calculate the BPI for the year ended 31 March 2011.

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(ii)

Unfurnished lettings BOA as above no wear and tear allowance Furnished Holiday letting

(iii)

(1) 3 Conditions to satisfy

The availability condition the accommodation is available for letting as Holiday Accommodation to the public for at least 140 days during the year. The letting condition - the accommodation is commercially let as Holiday Accommodation to the public for at least 70 days during the year. The pattern of the occupation condition 31 continuous letting out of 155 days.

(2) Capital allowances on Furniture are available. (iv) (1) Rent a room Normal treatment An exemption of $ 4,250 a year is available. The exemption is halved in case any other person (e.g. spouse/civil partner) also received income from renting accommodation in the property. If Gross rent < the Exemption ($ 4,250), the whole rent is exempted as well as the expenses. However, the taxpayer can ignore the exemption for example to generate a loss by taking into account both rent and expenses.

(2) Alternative basis If gross rent > exemption 2 treatments (a) The taxpayer will be taxed in the ordinary way ignoring the rent a room scheme. (b) If taxpayer elect to have the alternative scheme, then the taxpayer will taxed as follows: Gross rent less exemption with no deductions for expenses. Sylvia owns a house near the sea in Norfolk. She has a spare bedroom and during 2007/2008 this was let to a chef working at a nearby restaurant for $85 per week which includes the cost of heating, lighting etc. Sylvia estimates that her lodger costs her an extra: $50 on gas $25 on electricity $50 on insurance Each year. How much property income must Sylvia pay tax on? Solution Option 1 Total rental income of $85 x 52 - $ 4,420 exceeds $ 4,250 limit so taxable income is $170. ie ($4,420-4,250) if rent a room relief claimed. Option 2 alternative basis Rental income $ 4,420

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Less expenses (50+25+50) 125 Net rent 4,295 Premium received for the grant of a short lease (ie a lease of 50 years or less) (i) (ii) (iii) (iv) (i) Formula : premium assessable on short lease. Long term lease (> 50 years) but landlord can cancel the lease at any time before 50 years and the premium payable is less than market value for a long term lease. Premium payable by traders Sub-lease and premium assessable. premium assessable on short lease.

P * 51 D 50 P = Total Premium D = Duration of lease in years Example: A ltd makes up its account to 31 March . During the year ended 31 March 2011 the company grants a lease for a period of 21 years in return for a premium of $10,000. Required: Calculate the premium assessable Solution: (ii) P * 51 D , 50 10,.000 * 51 21 = $6,000 50

Long term lease (> 50 years) but landlord can cancel the lease at any time before 50 years and the premium payable is less than market value for a long term lease.

This is treated as a short lease and taxed in the normal way. A ltd grants a 99 year lease on property in London for a premium of $4,000. The lease agreement states that A Ltd may terminate the lease at the end of the 5th year. The current market value of a 99 year lease on similar property in London is $180,000. Is the lease a long lease. If, not calculate the premium assessable. 4,.000 * 51 5 = $3,680 50 (iii) Formula : Premium payable by traders Premium Assessable (landlord) OR No of years of lease P * (51-D/50) D

R Ltd & C Ltd both makes up their accounts to 31 March. On 1 July 07, R ltd granted a 21 year lease of business premises to C Ltd for premium of $10,500. C Ltd uses the premises for business purposes. Calculate the premium deductible for C ltd Premium Assessable (landlord) OR No of years of lease (iv) 10,500 * (51-21/50) * 9/12 = $ 225. 50

Sub-lease and premium assessable.

Head Lease A Ltd leases a property from B Ltd and paid a premium. Sub Lease A Ltd sublets part of the property to C Ltd.

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Tax consequences, A Ltd will be assessable on the sub lease. Example: A ltd makes up accounts to 31 March. On 1.08.97, V Ltd granted a lease to A ltd for a period of 20 Years and A ltd paid a premium of $20,000. On 1.08.10, A ltd granted a sub-lease to M Ltd for a period of 5 years and M Ltd paid a premium of $24,000. Calculate the premium assessable to A ltd for the year ended 31 March 2011 in respect of the premium received from M Ltd. $ Premium received Re Sub lease $ 24,000 *(51-5/50) Less Relief for premium paid Re- Head lease $12,400*(51-20/50) * 5/20(D Sub lease/D Head Lease) Business Property losses Losses from any particular property is (i) (ii) (iii) Set off against total BPI Any unrelieved losses from (i) above is off set against TAP or Chargeable Gain. If there is still unrelieved loss at (ii), it is C/F and set against BPI. 22,080 (3,100_ 18,980

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