ACFI 2308

Property Income Lecture Example Answer: Sue

Net Property Income: Pooled on accruals

Rental Income

Property 1 16,000

Property 2 Rental income 9/12 x 20,000 15,000

3/12 x 24,000 6,000

21,000

Grants 20 year lease Premium on short leaseP – 2% (n-1)P25K – (2% x 9 x 25K)

20,500

Total income 57,500

Less expenses : wholly and exclusively for business of letting

Property 1 Furnished 10% W & T

10% (16,000 – 800) 1,520

Council Tax 800

Repairs 1,600

Cleaning 500

Redecoration 920

Property 2

Repairs 3,800

Tutorial Solutions Property Income A101

Agents fees 2,500

Loan interest 8,950

Insurance on investment properties(3,000 x 9/12)+(3,200 x 3/12)

3,050

Gardening services 4,000

27,640

Net property income (59,250 – 27,640) less b/f loss 1,300 £28,560

Property Income Tutorial Solutions

Tutorial A Answer: Ros

a) Factory £

Rent (accruals basis) 11/12 x 24,000 = 22,000Short lease premium (Note 1) = 18,600

Furnished lettings in Cornwall

Jointly owned asset (Note 2)50% property income (9,662 x ½) = 4,831

Total property income on Ros £45,431

b) Harry y/e/ 31.12.10

Trading expense claimed by HarryRental expense accrued(1.5.10 – 31.12.10) 8/12 x 24,000 = 16,000

Tutorial Solutions Property Income A102

Short lease premium deduction(Note 1) £930 per year x 8/12 = 620

Total expense y/e 31.12.10 16,620

Tutorial Solutions Property Income A103

Note 1

Lease premium £30K for 20 years

Property Income £Premium 30,000Less 2% (n-1)P 2% x 19 x 30K (11,400)

Assessable on Ros 18,600

Ros is assessed on the rental income of £18,600 on 1 May 2010.

Harry can claim relief for rental income paid but must spread relief over the 20 year lease.

Harry claims relief of £18,600 = £930 per annum 20 years

Note 2: Cornish Property

Rental for 48 weeks 20,000Less expenses for rentingWater rates 2,000Heat and Light 1,400Interest 5,805Less wear and tear allowance10% (20,000 – 2,000) 1,800

Annual expenses(Disallow 4 weeks personal use)

11,005x 48 = 52

(10,158

Less trips to inspect property(60 x 3) (180

£9,662

Note: this does not qualify as FHL as periods of occupation are too long.

Tutorial Solutions Property Income A104

Tutorial B Answer: Chloe

2010/11

Building Society Interest 10,0008,000 x 100/80Dividend4,500 x 100/90Property income(Working 1)

24,750

Personal Allowance (6,475 18,275 10,000 33,275

Tax Charge28,275 x 20% =5,000 x 10% =

Tax liabilityLess tax suffered:DividendInterest (2,000

Payment on account (3,000

Tax due 31.1.12

Tutorial Solutions Property Income A105

Working 1:

Home

£ £Gross rental income 6,000

Relief for rent a room (4,250)

Nett rental assessable £1,750

Shop

Rent (accruals) (6250 x 4) 25,000Less:Bad debt 6,250Agents fees 1,250Insurance 750Interest 3,250No relief for extension (Capital)

(11,500)

Joint assets of husband and wife: income split 50:50 13,500

Income assessed on Chloe £6,750

Furnished holiday lettings

Rental 27,000CA’s (5,000)

£22,000

Property Income Pool(6,750 + 22,000 + 1,750) 30,500Less loss b/f (5,750)

£24,750

Tutorial Solutions Property Income A106