Simplified cash basis for unincorporated property businesses

By Tolley
Personal_tax_img

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Simplified cash basis for unincorporated property businesses
  • When should the simplified cash basis be used for a property business?
  • Income and expenses under the simplified cash basis
  • Treatment of losses under the simplified cash basis
  • Transitional rules on entry into the simplified cash basis and exit into the accruals basis
  • Should the property business owner opt out of the simplified cash basis?
  • Risk areas for advisers

This guidance note summarises when the simplified cash basis can be used for property businesses, the treatment of common property income and expenses and the restrictions as to how property losses can be relieved.

 

The income tax regime in relation to property businesses changed with effect from 2017/18 onwards with the introduction of the statutory simplified cash basis. This superseded the old HMRC non-statutory practice, under which use of the cash basis was accepted for small amounts of property income (ie gross receipts not exceeding £15,000), provided the cash basis was used consistently, that overall the result was reasonable and did not differ substantially from the profit calculated under the accruals basis.

F(No 2)A 2017, Sch 2, Parts 2, 4; PIM1101

The new regime is closely modelled on the simplified cash basis that was introduced for small unincorporated businesses in 2013/14. However, there are important differences between that regime and the simplified cash basis for property businesses, the most significant of which is that the simplified cash basis is automatic for property businesses and the interest deduction for property businesses is not limited to £500.

This guidance note summarises when the simplified cash basis can be used for property businesses, the treatment of common property income and expenses and the restrictions as to how property losses can be relieved. However, the legislation is complicated and, therefore, before advising clients, it is advisable to consider the statutory provisions carefully in relation to the client’s circumstances.

For ease of reference, the alternative to the simplified cash basis is referred to as the ‘accruals basis’ in this guidance note, although of course this means the basis under which both generally accepted accounting practice (GAAP) and standard tax provisions apply. For discussion of these rules, see the Property income ― accruals basis and Allowable property expenses guidance notes.

When should the simplified cash basis be used for a property business?

Unlike the simplified cash basis for small unincorporated businesses, the simplified cash basis for property businesses is the default method of calculating property income.

ITTOIA 2005,

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