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Sir,
I am a bit confused that from Rental income what expenses are to be deducted and then charged wear and tear allowance.
In Kaplan book and OT notes it is mentioned to deduct council tax/business rates and water rates and then wear and tear allowances are charged. But there is violation as in book in a question they are deducting bad debts too.. So please tell me clearly about what things are deducted and then rate is charged.The formula is 10% x (rent received – council tax – water/business rates).
So in order to achieve the figure of RENT RECEIVED in the above formula, you should get rid of the BAD DEBT first, in order to arrive at the actual rent received…. And then when you get the figure for rent received, just put that figure in the formula and you are done….
Hense you can write the formula like this:
10% x [ (rent received – bad debt) – council tax – water/business rates) ]
I just wanted to ask only these 3 or 4 things are to be deducted Or there are more?
In the Formula, yes. Only these three things are to be deducted from the Rent received before taking 10% on it and then add the figure in allowable expenses.
Ema,
I am reluctant to enter this area reserved for Tutor, because sometime students reply will not be correct also. If there are errors, hope tutor will correct.Lookout for hidden word “furnished” in the question!!!
1) In the case of unfurnished house letting, you can claim almost all expenses, except those that are capital in nature. Painting, repairs, ad. placed to get a guy to occupy property, insurance, interest on loan taken to buy property etc. will qualify. Repair to roof is not allowed. Mileage of car to buy the property is not allowed. Bad debt or if the guy walks out without paying rent is allowed expense. Deposit received is not taxed, since it has to be repaid.
2) In the case of furnished house letting apart from claiming all expenses (other than capital) you can claim 10% of rental income. Only council tax and water charges and also bad debt if any are deducted from the rental income to calculate the 10% wear and tear expense.
3) In case you let out a room in your house, you can either claim actual expenses or straight 4,250 as expenses in a year.
4) In case the property qualifies as FHL or Furnished Holiday Home then you can claim all capex also as AIA of 500K per year.
5) If the question gives 4/5 properties let out, you can club the income together and expsenses for all properties together, instead of calculating each property income separately. Furnished holiday home has to be always kept separate.
6) Rent received in advance – sometimes you may get 13 months rent, but only 12 months is to be considered.
7) Learn the formula to calculate value of the lease premium if any received for letting out the property. Total Premium less 2% of premium x (lease tenure – 1)
The wear and tear allowance is only available for furnished lettings and is computed as:
10% x (Rental income accrued less bad debts and less Council tax and water rates)Do remember that the deduction of the council tax and water rates is only applicable where the landlord has paid for those expenses.
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