Property tax general overview for schedule A income and expenditure How much tax could you save as a landlord on your property?
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General Overview


Schedule A income and expenditure.

  • Income derived from property is taxed under Schedule A and is treated as unearned income. It includes the following:
    • rent from property
    • lease premiums (under 50 years)
    • ‘rights’ income – rights of way, sporting rights etc
    • letting fixed caravans and moored boats.-
  • Income derived from commercial letting of holiday accommodation is, however treated as earned income.
  • Expenditure normally allowed, if ‘wholly & exclusively incurred in connection with the above, includes:
    • repairs and maintenance (excluding improvements)
    • property and contents insurance
    • services provided to tenants
    • management costs, including administration and bad debts
    • rent paid to head landlord
    • all rates (business, council, water etc) paid on behalf of the tenant
    • loan interest where used to buy or improve the property.

    Note: income and expenditure can be aggregated when more than one property is owned.

  • Capital expenditure is not allowed against income under Schedule A. However, some relief may be obtained for the following:
    • expenditure on plant and machinery used for maintenance and also on qualifying industrial buildings let for industrial use.
    • ‘wear and tear’ allowance on furniture and items let to the tenant (normally 10% of the annual rental net of council tax)
    • ‘renewal’ basis where no wear and tear has been claimed and relief is then claimed on the cost of replacement (but no relief available on the initial expenditure)
  • Losses are carried forward against future profits where the expenditure exceeds the income in any particular year. (Note the aggregation allowed when more than one property owned – losses on one property can effectively be offset against profits on another).
  • Lease premiums - lump sum payments by tenant to landlord are taxed:
    • for leases over 50 years – Capital Gains Tax
    • for leases under 50 years – Schedule A. In this case the tax is calculated on the value of the premium in the year in which it is granted and reduced by 2% for each year of the lease after the first year.
    • relief for premiums paid is granted when the tenant uses the premises for business purposes where the tenant can deduct the premium from trading profits (Schedule D).
  • Reverse premiums – where the landlord provides a sum to persuade the tenant to enter a lease. The landlord can claim the sum as expenditure and the tenant will pay tax Schedule D tax if the premises are used for business, or Schedule A in all other cases.
  • ‘Rent-a-room’ relief is available for individuals who rent a part of their main residence and the exemption applies up to £4250. Alternatively the landlord may elect to deal with the rent under Schedule A as detailed above, and any case where the rent is above the current limit will automatically attract Schedule A tax. The landlord may, however, elect to have the excess over £4250 charged as Schedule A, but in this event will not be able to offset any expenditure against that excess sum.
  • Furnished holiday lettings where letting satisfies the following conditions, the income is treated as ‘commercial letting’ and treated as trading.
    • Furnished letting with a view to profit
    • Must be available to the general public for at least 140 days p.a.,
      actually let for at least 70 days
      not more than 31 consecutive days by the same tenant during seven months of the year.

    The benefits include:

    • Income treated as earned and therefore available for relief of premiums paid for pensions.
    • Losses are treated as trading losses and relievable under Schedule D
    • Capital allowances available for furniture (but then wear and tear allowances are not available)
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