L3 Investment and property income
This post is sponsored by Notary public London
Banks and Building Societies will collect tax at 20% from interest, leaving the taxpayer to receive interest net. Interest received from NSB investment
Accounts and direct saver accounts is paid gross, as is interest on gilt-edged securities
ISA – ISAs are tax favoured savings and investment accounts. You can use them to save cash, or invest in stocks and shares. The maximum you can put in to an ISA is £11,520 in the tax year 2013-14, up to £5,760 of which can be saved in cash
You don’t pay any tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax. But this does mean that you can’t use losses on ISA investments to reduce Capital Gains Tax on profits from investments outside the ISA.
Junior ISA – Junior ISAs are new long-term tax favoured savings accounts especially for children. From 1 November 2011 they are available to any child under 18, living in the UK, who does not have a Child Trust Fund (CTF) account. Like ISAs, you can use them to save cash or invest in stocks and shares. You can save up to £3,720 in the tax year 2013-14 into a Junior ISA and you won’t pay any tax on the interest or dividends.
Property Income – Rents receivable on lets in the UK
- Lease premiums (short leases <50yr)
- Rents from fixed caravans/moored houseboats
A distinction is made between income as above (unearned or investment income) and income derived from commercial letting of furnished holiday accommodation (treated as earned income, similar to trading income)
Basis of assessment
The assessable income from land and buildings for
each tax year is computed as: £
Rental income X
Less: related expenses (X)
Assessable income X
If the landlord lets more than one property, the assessable amount for each year is the aggregate of the profits and losses from all properties (except furnished holiday lettings).
The rental income and related expenses are assessable/deductible on an accruals basis. Accordingly, the due dates for payment of rent and actual payment dates are irrelevant.
Allowable deductions – To be allowable, the expenses must have been
Incurred wholly and exclusively for the purposes of the property business. This covers items such as:
- Agent’s fees and other management expenses
- Interest on a loan to acquire or improve the property.
Capital expenditure – In certain limited cases capital allowances available
- Wear and tear allowance – 10% of the rent for the year to cover wear and tear on furniture and other equipment let to a tenant
- Alternatively – expenditure relieved on renewals basis.
LESA – A landlord can also claim tax relief on up to £1,500 for capital expenditure on the acquisition and installation of certain energy saving items.
“Landlords Energy Savings Allowance”
Net – Income and allowable expenditure from all let properties is “pooled” for the year – If a profit – taxable in the current year If a loss – carry forward to use against property income (first available) in the future.
Furnished holiday lettings (FHL) – Accommodation counts as a FHL if:
- it is available for commercial letting to the public for not less than 210 days each fiscal year, and
- it is actually let for at least 105 days (ignoring any period of more than 31 consecutive days to same tenant) in each fiscal year, and
- the property is not let to the same tenant for periods of 31 days or more for more than 155 days per tax year.
Benefits of FHL status – Capital allowances available on furniture and fittings
- Income regarded as “earned” when determining relief available on pension contributions
- Business related CGT reliefs available
Lease premiums on grant of short lease (≤ 50 years) –
Part of the premium is treated as rent received in advance and increases the landlord’s property income assessment for the year in which the premium falls due.
Less: 2% x (n-1) x A (a)
Trading income deduction for traders
Where a trader has paid a premium for the granting of a short lease he may deduct the following amount per annum against his trading income, in addition to any rent paid:
Amount taxable on lessor / Number of years of lease
Rent a room relief – The first £4,250 pa collected from a tenant renting a room in your main residence will be tax free. If the rent received exceeds £4,250 the taxpayer can elect for either the assessment of:
(i) Excess rentals over £4,250 but with no deduction for expenses or
(ii) Total rents received less normal rental expenses.