Simplified cash basis for unincorporated property businesses

Produced by Tolley
Simplified cash basis for unincorporated property businesses

The following Owner-Managed Businesses guidance note Produced 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
  • Revenue and expense recognition where letting agent is involved
  • Lease premiums received
  • Security deposits
  • Capital expenditure
  • Capital receipts
  • Finance costs
  • Treatment of losses under the simplified cash basis
  • More...

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 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 further reading, see Simon’s Taxes B6.202C–B6.202E.

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 Taxation of property income for individuals and Allowable expenses for property businesses guidance notes.

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

The simplified cash basis for property businesses is the default method of calculating property income so the simplified cash basis must be used unless any of the following conditions apply:

ConditionComment
The property business is carried on by a company, a limited liability partnership (LLP), a partnership with a corporate partner, or a trustTherefore, the simplified cash basis applies to property businesses run by individuals and those run by partnerships (that are not LLPs) where all the partners are individuals. Note that there is no territorial scope to these provisions, therefore they apply equally to UK property businesses run by non-resident individuals where the income is taxable in the UK
The gross property income exceeds £150,000 for the tax yearFor the purposes of applying the threshold, the gross rental income is calculated under the simplified cash basis (see below) and is known as the ‘cash basis receipts’. The £150,000 threshold is reduced proportionately if the business is not

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