Property and investment income: formula sheet

Key formulas

Property profit

Property profit = Rent taxable in the period − allowable expenses

For individuals, use cash received and paid by default. For companies, use accruals. For individuals, residential finance costs are not an expense here. They give a 20% tax reduction instead.

Property allowance

Deduction = the larger of £1,000 and actual expenses

If you claim the allowance, no actual expenses are deducted. You cannot claim both. It is not available to companies or where rent-a-room relief applies to the same income.

Premium on a short lease

Income element = Premium × (51 − n) ÷ 50, where n is the lease length in years

Applies where the lease is 50 years or less. The income element is taxed as property income in the year the lease is granted. The remainder of the premium is a capital gain.

Capital part of premium

Capital part = Premium − income element

Valid for leases of 50 years or less. Use part disposal rules for the capital part, treated as the disposal of an interest in the land. The income element is taxed in the year the lease is granted.

Property loss

Individual: loss carried forward against the first available future property profits. Company: UK property business loss set against total profits

A loss on one letting is set against profits from other lettings in the same year first.

Rent-a-room limit

Exempt if gross receipts ≤ £7,500

The limit is £7,500 per year as given in the ACCA tax tables. Exemption is automatic. No expenses are deducted.

Alternative method

Taxable = Gross receipts − £7,500

Applies only if receipts exceed £7,500 and you elect. No expenses are deducted.

Ordinary method

Taxable = Gross receipts − Allowable expenses

Normal property income rules. Use it if expenses exceed £7,500.

Choice rule

Choose the lower of (receipts − £7,500) and (receipts − expenses)

This is the same as comparing expenses with £7,500.

Shared property

Limit is split between those receiving the income

For example, £3,750 each for two equal sharers.

Main pool WDA

WDA = 18% × (pool balance b/f + additions not covered by AIA or FYA − disposal proceeds)

Reducing balance. Time apportion for a period shorter or longer than 12 months.

Special rate pool WDA

WDA = 6% × (pool balance b/f + additions − disposal proceeds)

Integral features, long-life assets and cars with CO2 over 50 g/km.

Annual investment allowance

AIA = 100% × qualifying expenditure, up to £1,000,000 per 12-month period

Not available on cars. Adjust the limit by months ÷ 12 for a short or long period. Allocate it to special rate pool spending first.

Enhanced allowances (companies only)

Main pool new plant: 100% FYA. Special rate pool new plant: 50% FYA

New and unused plant only, and not plant for leasing. Any remaining special rate balance gets 6% WDA.

Cars

New zero-emission: 100% FYA. CO2 1 to 50 g/km: 18%. CO2 over 50 g/km: 6%

No AIA on cars. Second-hand zero-emission cars get 18%.

Structures and buildings allowance

SBA = 3% × qualifying construction cost × months in use ÷ 12

Straight line, not reducing balance. Land cost is excluded. Non-residential only. Starts when the building is first brought into use.

Balancing adjustment

Balancing allowance or charge = pool balance − disposal proceeds, in the final period

On cessation there is no WDA or AIA in the final period. Proceeds are limited to original cost.

Order of income

Non-savings → savings → dividends

Tax each type in this order. The personal allowance is deducted from income in the same order.

Income tax bands

Basic £1 – £37,700; higher £37,701 – £125,140; additional over £125,140

Given in the ACCA tax rates and allowances. The bands apply to taxable income of all types.

Non-savings and savings rates

20% / 40% / 45%

Savings income uses the same rates as non-savings income, after any nil rate.

Dividend rates

8·75% / 33·75% / 39·35%

Basic, higher and additional rate bands respectively.

Starting rate for savings

0% on savings within the first £5,000 of taxable income

Starting rate band available = £5,000 − non-savings taxable income (nil if negative).

Savings nil rate band

Basic rate £1,000; higher rate £500; additional rate nil

Applies to savings income left after any starting rate. The taxpayer's band depends on total taxable income.

Dividend nil rate band

£500

Available to all taxpayers. The £500 is taxed at 0% but still uses up band space.

Personal allowance

£12,570; reduced by £1 for every £2 of adjusted net income over £100,000; nil at £125,140 or more

Set against non-savings income first, then savings, then dividends.

Overall ISA investment limit

Maximum subscription per tax year = £20,000

This is the total across all ISA types. It is given in the tax tables, but know it.

Tax treatment inside an ISA

Interest, dividends and capital gains within an ISA = exempt

Exclude them from taxable income and from chargeable gains. Do not use up nil rate bands or the annual exempt amount on them.

Remaining subscription room

Unused limit = £20,000 − amounts already subscribed in the tax year

Use this when a question asks how much more can be invested.

Adjusted net income

ANI = net income − gross Gift Aid donations − gross personal pension contributions (relief at source)

Use ANI for both the allowance reduction and the child benefit charge. Net pay pension contributions are already deducted in arriving at employment income.

Personal allowance

£12,570

Given in the tax tables. Full allowance if ANI is £100,000 or less.

Allowance reduction

Reduction = (ANI − £100,000) ÷ 2

The allowance is nil when ANI is £125,140 or more. Never let the allowance go below zero.

Child benefit charge

Charge = child benefit received × (1% × number of whole £200 of ANI over £60,000)

Ignore any part of £200. At £80,000 or more the percentage is 100%, so the charge equals the benefit.

Gross up a Gift Aid gift

Gross = net paid × 100 ÷ 80

Gift Aid gifts and relief at source pensions are paid net of basic rate tax. Use the gross figure to reduce ANI.

Annual allowance (2023–24 to 2025–26)

Annual allowance = £60,000

Covers personal and employer contributions together. Minimum allowance after tapering is £10,000. The income limit for the taper is £260,000 of adjusted income.

Maximum relievable personal contribution

Higher of relevant earnings and £3,600 (gross)

Work with the gross figure. £3,600 gross is the maximum which can qualify for relief without any earnings, so it applies when relevant earnings are lower.

Gross from net contribution

Gross = Net paid × 100 ÷ 80

A personal pension contribution is paid net of 20% basic rate tax. The scheme claims the 20% from HMRC.

Band extension

Basic rate limit = £37,700 + gross personal contribution; higher rate limit = £125,140 + gross personal contribution

Both the basic rate limit and the higher rate limit (£125,140 of taxable income) are extended by the gross personal contribution. So higher rate relief is given at 40% and additional rate relief at 45% on the gross amount.

Annual allowance charge

(Total contributions − available allowance) taxed as the top slice of income

Available allowance is the current year's £60,000 (or tapered amount) plus unused amounts from the previous three years, earliest first. Add the excess on top of taxable income and tax it at the rates of the bands (extended where relevant) in which it falls.

Cap on income tax reliefs

Cap = higher of £50,000 and 25% of income

Applies to certain reliefs unless otherwise restricted. Pension contributions are not subject to this cap; they are limited by the annual allowance instead.

Quick revision

• Order of income: non-savings, then savings, then dividends.
• Basic rate band is £37,700 and the higher rate band runs to £125,140.
• Dividend rates are 8·75%, 33·75% and 39·35%; normal rates are 20%, 40% and 45%.
• Dividend nil rate band is £500, whatever your band.
• Savings nil rate band is £1,000 for basic rate and £500 for higher rate taxpayers; additional rate gets none.
• Starting rate of 0% on savings applies only to savings within the first £5,000 of taxable income.
• Rent-a-room relief limit is £7,500.
• ISA overall limit is £20,000, and ISA income is tax-free.
• Personal allowance is £12,570 and is withdrawn from £100,000 of adjusted net income, reaching zero at £125,140.
• Child benefit charge is 1% of the benefit for every £200 of income over £60,000.
• Annual investment allowance is £1,000,000; main pool 18%, special rate pool 6%.
• Structures and buildings allowance is 3% straight-line.

Common mistakes

• Claiming both the £1,000 property allowance and actual expenses. Fix: Choose one. Compare actual expenses with £1,000 and use the larger deduction. The allowance is not available to companies or where rent-a-room relief applies to the same income.
• Deducting capital costs such as an extension or the cost of buying the property. Fix: Only revenue expenses are deductible. Improvements are capital. Repairs restoring the property to its former state are revenue.
• Deducting expenses under the alternative method. Fix: Under the alternative method, only the £7,500 is deducted. No expenses are allowed.
• Applying the limit to profit instead of gross receipts. Fix: Test the gross receipts against the limit. Ignore costs for the exemption test.
• Claiming plant and machinery allowances on furniture and appliances in a let house or flat. Fix: Check the property type first. Residential dwelling lets get no plant allowances. Common areas and commercial property can qualify.
• Including the cost of land in the SBA calculation. Fix: Use only the qualifying construction cost. Strip out land, and strip out any element that is plant.
• Taxing savings or dividends before non-savings income Fix: Always rank non-savings first, savings second, dividends last. This decides which bands each type falls into.
• Giving the starting rate when non-savings taxable income is £5,000 or more Fix: Calculate £5,000 minus non-savings taxable income after the personal allowance. If the result is nil or negative, there is no starting rate.
• Including ISA interest or dividends in taxable income. Fix: Underline the word ISA in the question. Treat anything earned within it as exempt and leave it out.
• Thinking each ISA type has its own £20,000 limit. Fix: Remember that £20,000 is the overall limit across all ISAs in the tax year.

Exam tips

• Look at the taxpayer first. Individual means cash basis, company means accruals, and a stated opt-out changes the answer.
• Always compare expenses to the £1,000 property allowance when expenses look small. Take the larger deduction, and remember the allowance means no actual expenses. The examiner likes this trap.
• For an individual, do not deduct interest on a residential property loan. Give a 20% tax reduction instead. Interest on commercial property is deductible.
• Set out each expense as an allowable or not allowable list. Marks are given for the reason why an item is excluded.
• For objective test questions, check the lease length and use the formula with care. The wrong value of n is the common slip.
• State a loss clearly. An individual carries it forward against future property profits. A company can set a UK property business loss against total profits.
• Write both calculations in Section C. The marker can then award marks even if you choose the wrong method.
• In objective questions, check whether the room is in the main home and whether the income is shared.