Where can I find a list of HMRC allowable Property Expenses? Reply

Beginning and end of a rental business: commencement

Summary
Usually a rental business begins when letting first commences.
Allowable revenue expenditure incurred before the rental business begins can be relieved under the ITTOIA05/S57 or CTA09/S61 provisions for pre-trading expenditure.

Deductions: main types of expense

PIM2070
Advertising expenses
PIM2072
Bad and doubtful debts
PIM2074
Cash back on loans
PIM2076
Cost of providing services
PIM2078
Costs due to common ownership
PIM2080
Criminal payments, bribes and similar items
PIM2082
Entertaining expenses and gifts
PIM2100
Expenses for own home
PIM2105
Fees for loan finance and similar items
PIM2106
Fines
PIM2110
Insurance premiums and recoveries
PIM2120
Legal and professional costs
PIM2130
Properties not let at a commercial rent
PIM2140
Rates and council tax
PIM2200
Rent collection
PIM2205
Rent paid out
PIM2210
Salaries and wages of employees
PIM2215
Sea walls
PIM2220
Travelling expenses

Are my costs Capital or Revenue expenditure?

Beginning and end of a rental business: cessation

steve@bicknells.net

What are Unused Residential Finance Costs? Box 45 and 45a Reply

It’s the dreaded Clause 24 Interest Rate Restriction being phase in as noted below

2018/19 50% of the interest can be claimed in full and 50% will get relief at 20%
2019/20 25% of the interest can be claimed in full and 75% will get relief at 20%
2020/21 100% will get only 20% relief

Investors with residential property will probably have noticed boxes 45 and 45a

45 Unused residential finance costs brought forward

45a Unused residential finance costs carried forward

This is how HMRC explain these figures

Example 4: carrying forward unused finance costs

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies#example-4-carrying-forward-unused-finance-costs

In the tax year 2020 to 2021 Brian’s annual salary before tax is £36,000 and his rental income is £20,000. The property was empty for 2 months while he found a new tenant and during that time he carried out some repairs on the property.
Brian’s mortgage interest was £15,000 and he had other allowable expenses of £7,000 due to the repairs he carried out.

Tax year 2020 to 2021
Salary before tax = £36,000
Property income calculation:
Rental income = £20,000
Allowable non-finance costs = – £7,000

Property profits = £13,000
Total income = £49,000

Income Tax calculation:
£11,000 x 0% = £0
£32,000 x 20% = £6,400
£6,000 x 40% = £2,400

Finance cost tax reduction calculated
on property profits (£13,000 x 20%) -£2,600

Final Income Tax = £6,200

Brian’s tax reduction is calculated as 20% of the lower of:
finance costs = £15,000
property profits = £13,000
adjusted total income (exceeding personal allowance) = £38,000
The lowest figure is property profits, so £13,000 x 20% = £2,600 tax reduction.
The £2,000 finance costs (£15,000 – £13,000) that haven’t been used to calculate his basic rate tax reduction are carried forward to calculate his basic rate tax reduction in the following year.
In the tax year 2021 to 2022, Brian’s salary is £36,000 and his rental income is £24,000. His mortgage interest is still £15,000 and he has other allowable expenses of £2,000.

Tax year 2021 to 2022
Salary before tax = £36,000
Property income calculation:
Rental income = £24,000
Allowable non-finance costs = – £2,000

Property profits = £22,000
Total income = £58,000

Income Tax calculation:
£11,000 x 0% = £0
£32,000 x 20% = £6,400
£15,000 x 40% = £6,000

Finance cost tax reduction calculated
on finance costs (£17,000 x 20%) -£3,400

Final Income Tax = £9,000

Brian’s tax reduction is calculated as 20% of the lower of:
finance costs (£15,000 of the current year and £2,000 brought forward) = £17,000
property profits = £22,000
adjusted total income (exceeding personal allowance) = £47,000
The lowest amount this year is finance costs, so £17,000 x 20% = £3,400 tax reduction.

 

steve@bicknells.net

My Bank gives Rewards – how are they taxed? Reply

It seems crazy to me that banks give rewards and charges at the same time, wouldn’t lower charges be better?

The rules for Interest are covered by https://www.gov.uk/apply-tax-free-interest-on-savings

These rules include the Personal Savings Allowance and means (provided you aren’t an additional rate tax payer) you could get up to £1000 tax free (£500 for higher rate tax payers).

The problem with rewards is that it depends on what they are as to how they are treated

  1. If the reward is interest (calculated as a rate on the balance) then it should be paid gross, it will be savings income and eligible for the Personal Savings Allowance (PSA)
  2. If its a reward for depositing a certain amount each month or other activity then its not savings income and the bank should have deducted 20% before paying it under the annual payment rules. You will need to report this on your Self Assessment or R40 to reclaim the tax, this income is not with the PSA rules.
  3. If there is reward not related to the balance and there are also charges and fees on the account, it won’t meet the criteria for an annual payment and the bank won’t deduct 20% at source. You will need to declare it as ‘Miscellaneous  Income’ on your self assessment return

steve@bicknells.net

 

Are you taxed if you generate surplus power? Reply

There are special rules for the domestic generation of surplus power – BIM40520

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim40520

Specific receipts: domestic microgeneration: Income Tax exemption for domestic microgeneration

S782A Income Tax (Trading and Other Income) Act 2005

With effect from tax year 2007-08 there is an exemption from Income Tax for an individual’s income from the sale of electricity generated by a microgeneration system where:
1. the system is installed at or near domestic premises occupied by the individual, and
2. the individual intends that the amount of electricity generated by the microgeneration system will not significantly exceed the amount of electricity consumed in those premises.

For the purpose of this exemption ‘domestic premises’ means premises used wholly or mainly as a separate private dwelling.

A ‘microgeneration system’ is defined in S4 Climate Change and Sustainable Energy Act 2006.

This exemption is aimed at domestic microgeneration which is primarily intended to match the generator’s own home consumption needs. The term ‘significantly exceed’ in (b) above is not defined in Section 782A and should be considered by reference to the particular circumstances. However, in general, a householder who does not intend to generate an amount of electricity more than 20% in excess of their own domestic needs is unlikely to be regarded as intending to significantly exceed the amount of electricity consumed in their own premises.

No income tax will therefore arise on feed-in tariffs received by an individual from domestic microgeneration where the above conditions are met.

The exemption may apply where an individual installs a microgeneration system at a property which is not the individual’s main residence provided that the other domestic property is used by the individual, wholly or mainly, as a separate private dwelling and the other conditions are met.

steve@bicknells.net

 

Tax Strategies for 2019/20 Year End Reply

With the end of the tax year fast approaching, now is a good time to review your business and personal finances to ensure that they are as tax-efficient as possible.

We can help make sure that you don’t miss out on any money-saving opportunities.

Please take some time to read through our 2019/20 Year End Strategies Guide, which contains practical guidance and ideas to implement before 5 April 2020.

With our useful tips and expert assistance, we can help you and your business to minimise the tax burden and increase profitability.

steve@bicknells.net