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Property Income

On 31 January 2017 HMRC announced a number of changes which will take place from 6 April 2017, one year earlier than the other MTD changes.

Property businesses and landlords should be aware that:

  • the cash basis will be the default method for calculating rental profits and losses for individuals unless the landlord opts out, or the gross annual rents exceed £150,000, in which case the accruals basis must be used (ie when the money was actually due to be paid or received).
  • if the cash basis is going to be used, it must be used for the rental business as a whole, it isn’t an election on a property by property basis. If a husband and wife each have a rental business, and they own just one property jointly, then they will have to use the same basis for their entire property business as they must use the same basis for their jointly owned property.
  • joint owners of a rental property can take an independent decision as to whether or not to use the cash basis, except where the joint owners are a married couple or civil partners when they must both use the same basis (see above).
  • overseas and UK property businesses will be treated as separate businesses and the decision over whether or not the cash basis is used can be made separately for each business.
  • refundable security deposits won’t have to be accounted for under the cash basis though, until they become rightfully the landlords.  At this point, there should be an expense to match against it for the remedial work that the deposit was retained for.
  • interestingly, the timing for receipts and expenditure where the property is managed by an agent, will be the date the cash is received or paid by the agent and not the date that the agent accounts for it to the landlord.
  • this cash basis isn’t available to trustees, companies, limited liability partnerships and corporate firms (i.e. one where one of the partners is not an individual).

Please contact Michael Burgess on 01782 279615 if you have any questions on businesses with property income.