Rental Income Computations

Legislation

Section 81(4) Income Tax Act 1967 sets out the computational rules for the assessment of profits or gains chargeable under Case V of Schedule D.

Specifically the section provides that “rent” is the gross amount before any deduction for income tax and the amount of profits or gains is (subject to any relief afforded by Section 82) the aggregate of the surpluses computed in accordance with paragraph (c) reduced by the aggregate deficiencies as likewise computed in respect of each rent or easement.

Rental Computations

A computation of the surplus/ deficiency is required for each letting and for the total receipts from easements. The legislation does not permit the adding together of rent and expenses from various lettings to arrive at an overall surplus/deficiency.

Return Forms

The tax return forms for both companies and individuals in receipt of rents reflect the above requirements. The forms specify that “an itemised list should be attached showing gross rent from each letting and the expenses etc., deducted in arriving at the income figure shown”. This is reflected for companies on Form CT1 (Note 5) and for individuals on Panel 4 of the Form 11.

Conclusion

It appears from returns examined that some practitioners, whether in dealing with individuals or companies, are ignoring the requirements as set out above. Practitioners are therefore reminded that a separate computation in respect of each letting is required and the addresses of each of the let properties must be specified.