-

PROPERTYINCOME

Advance Taxation

Tutor : Owais Mirchawala

Income
Property
 Practice Question No. 2:

Property Income expense will be

given
when that
accesory
is

#
Mr. A let out a commercial property having following details:
=
>
-
-

-
This head includes taxation on rental income
replaced .
Improvement amount will not be an
-
-
Rent is 37,000 per year
- -
-

Water taxes are 7,000 per year

-

allowed -
generated through letting of properties .
expense while
doing replacement
- - -

.
-
~ Council Tax is 1,500 per year
- -
-
-

- Interest on Property Loan was 3,700 per year

Property income is taxed as Non
Saving income
Capital Expenditure done on
infrastructure property -
-
- -
- - -

- Agency Cost was 2,500

(Only
-
-

individuals . tax) . allowed

for not
income is an expensee. The property was let out from 1st July and the tenant left the property on
- - - =
-

(NIC) 28th February, without paying rent of last month. Property was was
-
No National insurance Contribution on
Property -
- - - - - - -

Practice Question No. 1: available for letting for remaining

= -
=
part of the year. Advertising charges of
- - -
-

1,300 were incurred during year. -

-

income . -

-
- -

Mr. J has let out a commercial property having following details:

-

Calculate Taxable Property Income?

-

taxed
- - - -

Property income is on Cash basis. However

-

- Rent is 2,400 per month

- -
accrual basis will - Water taxes are 30 per month
apply
If
-
- -

- Local Tax is 25 per month

Rental exceed Rentals received
- -

↓ income 150 , 000

per - Insurance charges are 45 per month : 37 000
, x 1months = 21 583
,
-
-

year OR O
The property was let out in month of May and Tenant left the property 12 months

O
- - - -
& - -

in month of January without paying rent last month. Property was

allowed
-
Landlord
=>
Less
company OR
= -

is
=> -
-

expenses
=

a
=
available for letting for remaining part of the fiscal year. Advertising
--
- - -
--
-
-
-

charges of 2,300 were incurred during year.

3
. A
person
elects
for accrual basis .
-- - -
Water
-
tax (ood)
Calculate Taxable Property Income?
Taxable
property income calculated Council tax (1500)
in
following
is
-
-

manner
-
Rentals received :
2400 xmonths [ 19 ,
200 -
Interest on loan (3700) -

Rentals received Less allowed Cost (2500)

expenses
Agency
-

XXX -

(xXX) (360) (1300)

allowed Water tax months
Advertising
Less 30 X 12 Cost
expenses
- -
- :

Taxable Local tax 12months (300 property

5 583
property income XXX -
=
25 X
Taxable income .

-
In Cash basis
,
Rental received represents rentals
-

Insurance = 45 X 12 months (540)

(2300)
received
during the
fiscal year Advertising
-

In Rentals Taxable 15 700 If lets out residential

Accrual basic will
represent rentals
property income individual
property
-

a
~

,
, an
,

which became due

during the current
fiscal year . which was
purchased through
loan
,
then interest

deductable that lan not be

Allowed
expenses are
for actual
letting expense on will an
-

If allowed Interest relieved

period and available
for letting period. property expense. expense will be

credit
then tax
from Tax .
liability
will not be as
was in
private use
expenses
a 20 %

allowed that
for period.
Allowed include
expenses
-

1 Water tax 5 Insurance

charges
2 Local tax 6 Bad (Accrual
, debt basis)
3
, Council tax 7 Advertising charges
4 Repair expenses 8
Agency cost

9
Replacement Expenditure .

Replacement expenditure means that accesories

installed in
property will not be allowed expense
-

installed the time . However allowed

when
for first
Practice Question No. 3: Practice Question No. 4
Rent Room
Mr. A has let out a residential property having following details:
= -
Mr. A has let out a residential property having following details:-
a
Relief
If
- - - >
- -
-
-
individual lets out OR
an room rooms
from
-

- Rent is 60,000 per year

- - -
- Rent is 110,000 per year
-
-

- Council Tax is 4,000 per year - Water Tax is 4,000 per year
principal letting furnished
-
his residence that
E
-

- -
= - - such was
- -
Interest on Property Loan was 2,500
=>
-
per year - Interest on Property Loan was 8,500 per year - ,

Room
-

Rent
- - -

- Agency Cost was 1,500 - Agency cost 4,000 - then will be available.
relief
T
a
-

-
- -

- ↑
Advertising charges 1,300 -

- Advertising cost 3,500 E

Rent allowed to
- - -

a
relief allows expense
-

room
This property was let out from 1st August to 31st December, when This property was let out on 1st May and the tenant left the property on ,

O
- - - - - -
>
- - -

at
- -

tenant left the property without paying rent of last month. Property was 28 February next year. Property was in residential use for 1 month be claimed
in&
- - -

residential use for two months during the fiscal year and in rest of
- - - - -
-

during the fiscal year, and it was available for letting for remaining higher of
Actual allowed allocated
- - - - -

1 to
-

that room(s)
-
-
-

expense
-

the empty months it was available for letting.

- -
months. Tenant left the property without paying rent of last month.
- - - -
-
-

Mr. A also earned employment income of 40,000

- - >
during the year. -
-
Calculate Taxable Income?
-
2) t7, 500
Calculate Taxable income for the year.
-

Practice Question No. 5:

-

Rentals received = 60 ,
000 x 4 -
20 000 ,
-

Rentals received =
110 , 000 X 9 =
82 ,
500
Mr.-
N rented
- -
a room from his principal residence at a rent of 1,500 per
-
- -

12 12
month. Actual Expense allocated to t his room were:
- >
-
-
-
-

- Water taxes of 70 per month

Less allowed allowed
-

Less
-

expenses
:
expenses - Local Taxes of 50 per month
-
-
:
- -

4000
(3667) - Advertising cost 1,500 -
-
Council tax X 10 (3 333)
, Water tax it XII
-
=>

Agency cost 300

-

Lanired) Caned)
- -

Interest on
property loan Interest on
property loan Required: Taxable Property Income?
- -

Agency
Cost (1500)
Advertising (3500)
(1300) (4 000) 18
Advertising Agency
Cost Rentals received 500
-

, >
-
: 1 x 12 months =
,
000
,

Taxable
Property income 13 867, Taxable Property income 71 333 ,
-
Less allowed expense :

higher of 17500)
-

Actual 10 500
,

↓
Tax return Tax Return Water tax 70 x 12 840 Taxable Property
-

= =

600 income
tax 50x12
Non
Saving Non
Saving Local
-
= =

Property income 13 867

,
Property income 71 333
,
-

Advertising 1500

40 000 Personal (12 , 570)

Employmen↓ income allowance
Agency 300
-

Total income 53 , 867 Taxable income 58 ,763 3240

Personal (12 570) Fixed :7500 ~

allowance ,
Tax 37 700
,
X 20 % - 7540 -

Taxable income 41 297 ,

21 063
,
X 40% =
8425

58 763
Tax , Tax
Liability 15 695 ,

37 700 ,
X 20 % I
7540 Tax Credit= 8500 X 11 X 20 % (1558)
3597 40%
X =
1439 12

41 297 8979
, Tax liability Tax
payable 14 137
,

Tax Credit = 2500 x 10 X 2

(417 (
12

Tax
Payable 8562
 4 Kesme and Soba, a married couple, require advice on Kesme’s taxable income and rent-a-room relief, the capital gain
=
= - - - -

on a future sale of the family home, and the assets which will be received by Soba under Kesme’s will.
-

-
- - - - -
>

Kesme:
-

– Is UK resident and UK domiciled.

- -

– Is married to Soba.
= -

– Has not made any lifetime gifts for the purposes of inheritance tax.
- - - -

Soba:
– Is UK resident but non-UK domiciled.
*
-
-

– Has elected to be treated as UK domiciled for the purposes of inheritance tax.

-
-
- -
-

O
Kesme’s income for the tax year 2025/26:
~>– State retirement pension of £7,900 (gross).
-

-
-
-
-

) – A pension from a former employer of £24,100 (gross). -

- - - - -

– Rental income in respect of furnished rooms in the family home.

=> --
- -
-

– Interest in respect of 8% loan stock in Ramen plc.

> -
-
-
= > -

&
=
-

50 : 50
- - E
Rental income in respect of furnished rooms in the family home:
- -
-

– Kesme and Soba purchased the family home on 1 July 1990 and have lived there since that date.
- - -
-

-
= - -
=
- -

– Three furnished rooms have been rented out to an individual tenant since 6 April 2013.
- -
- >
-
- -

– The tenant does not share Kesme and Soba’s living accommodation or take meals with them.
- - -
- - - -

– The three rooms represent 30% of the property.

O
-
- -

– The annual rent is £14,400 and there are allowable expenses of £1,600 per year.
- -
-
-
-

18 % 8
8% -
loan stock in Ramen plc:
-
, +
000
=4014 ear

– Kesme purchased £18,000 of 8% loan stock on 1 May 2017.

–
- =>

#
-
- > -

Interest is payable on 31 May and 30 November annually. Rept

basis

①
-

Kesme sold the 8% loan stock on 30 September 2026 cum interest.

=

–
-

- - - = > -

Kesme’s estate and his will:

– Kesme’s share of the family home, a plot of land and chattels are worth £1,280,000 in total.
– The plot of land is worth £370,000 and is situated in the UK.
– Kesme has left the plot of land to his daughter. 31 May 2025
-

30 Nov 2025
– Kesme has left the residue of his estate to his wife, Soba. .

Marchs
to

>31
Required: ri2025

C
(a) Explain the availability and operation of rent-a-room relief in relation to Kesme and calculate his taxable
⑧
- - - = -

year 2025/26 on the assumption that the relief is claimed.

- -
#

income for the tax

= - -
(8 marks)
-
>

(b) Explain the effect of renting out the furnished rooms on the amount of the taxable capital gain on a future
sale of the family home. (6 marks)

(c) Explain the implications of the election made by Soba to be treated as UK domiciled for the purposes of
inheritance tax, and calculate the value of the residue of the estate which she would receive under Kesme’s
will if he were to die on 6 June 2027. (6 marks)

(20 marks)

11 [P.T.O.
Kesme & Soba

_ Rent Room
a
relief
Rent will be available
relief
-
a room in

three
respect g letting of
rooms
by Kesme

& Rent will be available

Soba .
a room
relief
residence let out
from principal
as rooms are

furnished.
rent allowed
Through a
relief
-

room
expense
rental
respect of three be
will
of
in rooms

higher of
1 Actual allowed expense = E l 600
Rent -750
relief
2
, a room
:

Allowed claimed
expense of 7 500 will be
-
.
,

owned Kesme's
As
property is
jointly therefore
~

allowed will be 7500 E3750

expense
share in x 50%:

Taxable income kesme 2025/26

of for
Nor
Saving Saving
State retirement 7 900
pension
T
-

Pension 24 100
from Employer
-
-

Property (14 400 1500)

income : ,
- =2 3450 -

Interest (18 000 X 8%) =

1440
-

income ,

Total income 35 450 ,

1440

Personal allowance (12 570)

,

Taxable income 22 880 ,

1440
 Practice Question No. 7:
Premiums If tenant then
Lease is
using
the
property in business Mr. K let has out a property having following details:
-

--
T -
-

In allowed
letting tenant
against claimed
be
-
normal
,
a
pays rent per
year expense will
from -
-
Rented at a nominal rent of 600 per month
-
- ~
-
-
-

Premium of 94,000 was received for a period of 40 years

asset do not
trading
-

PEL .
=>

Tenant have to
rights
- - -

g - Property was originally acquired at a premium of 100,000 for a period

Ube .

-
- - - > &

of 50 years
If tenant the allowed
O
sublet
modify
the
property. sublets
property then
=
-

- Local tax is 2,000 per year and

-
-
-
-

- Water tax is 3,000 per year

-

In premium letting ,
a tenant
pays lease
premium expense will be in
property income .
-
=> -

Required Taxable Property Income?

along
with normal rentals. This lease premium
-
Premium XXX Landlord :

Propertye
allows tenant to have some additional ~
2% X (n 1)-
x Premium (XXX)
to These Tenant allowed Rental 7
relating include XXX 600 200
rights
income 12 months
property. right
=
X
-

= ,

expense
to sublet to Premium 94
and
right modify property. received 000
-
=
,

2% x (40 1)
-
x 94, 000 (73 30 ,
Practice Question No. 6: 40
Premium will assessed 680 years
be taxation 20 20 680
Mr. X sublet his property at a premium of 36,000 forG
in
following
-
in
12 years. He has , ,

=>
-
- * - -

originally acquired this property for 30 years at a premium of 93,000. Less allowedExpenses
manner
-
-
-
=>
-
-

Required: Taxable premium for Mr. X.

X
-
-
-
Premium paid 100 000 ,

2% x (50 -

D x 100 000
,
198 % 00
.

Premium received 36, 000 Allowed expense 50

years
2 000 + 2 40y (1600)
for
-

, ,
000 x =

If premium paid If (12 1) (1920)

for premium for
is is -
2% x -

x 36 ,
000 504

than 50 less than 50

Property income 1 28 , 080 & 28 , 080 Local tax (2000)
more
years years years
-

↓,
↓ -
Water tax (3000
Premium
Property treated Premium be paid Taxable
property 2 280
-
is as
-

will -

93 000
income ,
,

assesed (30 D 93 , 000 (53 940)

disposed .
in
Property - 2 % x -
X ,

It will be assessed in income & CGi head Expense > 3 39 060 > 39 060
12y (15 62x)
years
x
- -
· .
, , =

tax.
Capital gains Property income 304

Taxable
-
Premium XXX
Property income 12 , 456

2% x (n= 1) x Premium ( x*x) > CGT

-

adjustment
Property income xx

years E.g.
number lease Premium 10
of
n= .
,
000

Period 40
years
-

-
Premium received is an
-
Premium 10 ,
000

landlord x(40 D (7800)

for
income
-
2% - x 10 000
,

2200
-
Premium paid is a cost

Premium
for tant. - 10 ,
000

Period 10

a
Tenant canclaim awe
years
-

-
=

- Premium 10 000
,

amount which is
after
-
2% x(10 D x 10,000
-

(1800)
CGT (2 Premium) 8200
adjusting amount % xn-1 x
Practice Question No. 8:
Furnished
Mr. D has let out a property having following details:
- - - =
- Holiday Letting (FHL)

- Rented at a nominal rent of 500 per month

- - - -

- Premium of 46,000 was received for a period of 25 years

Removed
from Course
- - -
-
=
- >
- Property was originally acquired at a premium of 59,000 for a
- - -
-
>
-

period of 38 years
-
>
-

- Local tax is 1,500 per year and

-
- -
-

- Water tax is 2,000 per year -

-
-

Required Taxable Property Income?

Normal rent received = 500 * 12 months = 6 ,

000

Premium received = 46 , 000

-
2% x (25 1) -
x 46 000
,
= (22 080) ,

Property income
for
25
-
years
23 920 ,
23 , 920

Less allowed expenses

-
Premium paid 59 ,
000

-
2% x(38 1) -

x 59 ,
000 (43 660) ,

25y 1009
15 340 +
Allowed expense
for
38 > 15 340
years ,
,
x ,

384
-
Local tax (1500)
-

Water tax (2 000),

Taxable
Property income 16 328 ,