Cash basis rules for property businesses

If you're a landlord knowing the cash basis rules for property businesses is vital. These new rules were introduced in April of last year as part of an earlier consultation by HMRC. 

By default the cash basis rules for property businesses applies to small unincorporated property businesses.

You aren't be able to use the cash basis rules in the following circumstances:

What are the cash basis rules for property businesses?

Essentially any rental income is accounted for when it is received, rather than when due. What's more, expenses are accounted for when they're paid. So these rules are similar to those for sole traders and partnerships. 

Some adjustments impact on how property income is calculated : 

Additionally, you can't apply the cash basis to premiums granted for a lease of less than 50 years, Also, for any work carried out by tenants in lieu of this type of premium. Additionally, there are certain other types of payment connected with the grant or assignment of a lease which don't qualify.

Loan interest and the cash basis rules for property businesses

If you're using the cash basis you deduct loan interest in the same way as those landlords using the accruals basis. However, there's a new interest restriction where the value of the loans in your property business exceeds that of your properties.

The usual restrictions for loan interest deductions on mortgages relating to residential property still apply.

Capital expenditure  and the cash basis rules for property businesses

Just like traders you aren't able to claim capital allowances if you're a landlord using the cash basis, except where it relates to the purchase of a car.

Instead you'll be able to claim the upfront cost of eligible capital items used in your business.

The following are regarded as non-qualifying capital expenditure:

An asset is regarded as a depreciating asset if it's useful life is expected to last less than 20 years. Or alternatively, it's value has declined by 90% or more at the end of 20 years.

Additionally, there are rules restricting capital expenditure where a business includes residential property which is a mixture of furnished holiday and non-furnished holiday lettings. 

Election for accruals rather than cash basis rules for property businesses

You have to submit an election tapplying the accruals basis within one year of the normal self assessment filing date.

What's more, If you have a mixture of different property businesses, for example UK and overseas property businesses a separate decision can be made for each property business.

Additionally, if you jointly own let property, you can make a separate decision whether to apply the cash or accruals basis.  The only exception is where you are husband and wife or civil partners. In this case, you both have to apply the same basis.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

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