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Rebecca,
that costs restriction on mortgage interest seems to be virtually identical to the current rules for the accruals basis. ie draw up a balance sheet of the business and only give relief interest up to the capital employed by the business.
This doesn't seem to be an "additional restriction" as you note in the opening para.
Albeit this is seemingly ignored by many of the landlords returns we pick up from other accountants.
What is more 'interesting' is the treatment of finance costs added to the loan balance. This is not 'cash' paid. Similarly, deposits.
So how does any transition from an accruals basis to a cash basis apply in 2017/18 (or each year, if gross rental income fluctuates around the cut-off point)?
I'd imagine for landlords of commercial property with rents falling due in advance on the quarter dates, then the previous accounting treatment would have been to treat a large proportion of the rent due on 25th March as being in advance relating to next year. Under the cash basis, there would be no adjustment at the end of 2017/18 so those rents would be treated as income in 2017/18, but how do we deal with the amount in advance brought forward? It's not a cash receipt in 2017/18 so does it just fall out of account entirely?
On a similar issue, has anyone determined the best way to deal with mixed use property under the new rules for restricting loan interest relief. For example, a building is purchased for £250k with a loan of say £200k. The ground floor of the building is used as a shop (ie a commercial let) but the two floors above are split into flats which are let as residential lets. Rental income is say £20k p.a. from the shop and £5k for the flats. Interest of £5k is paid on the loan. Should there be a restriction in respect of the loan interest under the new rules, and if so, how would you calculate it?
Mark
Your point re accruals to cash at 6 April 2017 is a good one and little covered.
Sadly(!) I do not think it falls out of account .....
New Section 329A ITTAOIA 2005 states that 'adjustment income' applies to property businesses using the cash basis when they transition into calculating profits on the cash basis from GAAP or vice versa.
As I see it,this must include 2016/17
The section requires the spreading of any adjustment income over 6 tax years whilst section 239B allows an election to bring an additional amount into charge in a
tax year than would otherwise be brought in under the section 239A spreading rule
So in the case of your rent received in March 2017,nearly all of it would fall to be taxed between 2017/18 and 2023/24 as adjustment income unless you choose to accelerate this into one or more of these years
Alternatively opt for accruals accounting and none of the above applies !
And under mandatory MTD, the 'magic' free software will be able to take all this into account, huh?