PROPERTY INCOME FROM A BUSINESSUnder the new system, the sched A rules have been rationalised for income tax purposes.

Sched D, case I computation rules are generally applied to the taxpayer's business; notably the accruals basis for income and expenditure.

However, profits have to be determined on a strict fiscal-year basis, not on the sched D, case I basis.The new accruals concept means that rents in arrears are included and rents paid in advance are excluded.

Business expenses will be deductible unless precluded by the sched D, case I rules.

The case I bad debt rules will determine whether a deduction can be made for unpaid rent.

Liabilities which have fallen due are included as a deductible expense whilst prepaid expenses are excluded.

In principle, travel expenses are deductible under the 'wholly and exclusively' rule for visits to the property to carry out or supervise repairs or collect rents.POOLING OF INCOME AND EXPENSESThe old distinctions between properties let at full rent and not on tenants repairing leases, those let on tenants repairing leases, and those let at less than a full rent no longer apply.

Likewise, the prohibition on deductions for the costs of repairs before the owner acquired the property no longer apply.

Under the new rules, all businesses and transactions are treated as a single business, so there is a complete pooling of income and expenses from all types of property letting.TIMING FOR NEW RULESThe new rules generally apply from 1995/96 both for existing and new sources of income.

If the income first arose in 1994/95, the new rules may also be applied for that year.

The transitional year is thus 1994/95.

No statutory rules deal with the transitional year, although non-statutory guidelines are contained in a Revenue press release of 10 February 1995.

These transitional provisions leave 1993/94 on whatever basis was consistently applied in the past and bring into the 1994/95 computation the whole of the income from the end of the 1993/94 basis period up to 5 April 1995; deducting any income included in 1995/96 on an accruals basis, and adding back expenses relating to the period after 5 April 1995.INTEREST RELIEFPreviously, interest was only deductible on a loan on a property if it was let at a commercial rent for more than 26 weeks and the loan had been taken out to acquire or improve the property.

These rules are abolished for interest paid on or after 6 April 1995.

Thereafter the computation of sched A income on sched D, case I lines means that interest will generally rank as a deductible expense, on an accruals basis, provided it is incurred wholly and exclusively for sched A business.CAPITAL ALLOWANCESRules entitling property-letting taxpayers to allowances for certain capital expenditure have been retained so that allowances are given by reference to the date when the expenditure was incurred, with writing down allowances available on the balance of expenditure at the end of the chargeable period, less any balancing allowance on disposals.

Under the new rules, the allowances are treated as an expense of a sched A business in determining the business's profit.

Balancing charges are also treated as a sched A receipt.

Capital allowances are not available for costs incurred in connecti on with the furnished letting of a dwelling house but the Revenue will allow relief under the renewals basis.LOSSESNew provisions give loss relief for a sched A business.

A loss will automatically be carried forward and set against sched A profits for the following year.

If those profits are insufficient to absorb the losses they may be carried forward to the next year, and so on indefinitely.

Except for losses attributable to excess capital allowances and agricultural expenses, there is no 'sideways' relief against other income.

Where an unrelieved sched A deficit is brought forward at 1 April 1995, computed under the old rules, this may be carried forward to 1995/96 and later years.

This encompasses sched D, case VI losses in respect of furnished lettings and any excess interest.FURNISHED LETTINGSIncome from furnished lettings previously within sched D, case VI is brought within the sched A net.

Hence any money which a tenant pays for the use of furniture is within sched A and the former right to elect for a split of rent between the property itself and the furniture is abolished.FURNISHED HOLIDAY LETTINGSFurnished holiday lettings are charged under the new sched A.

However, the activity is treated as a trade for the purposes of relief for losses against other income, pre-trading expenditure and capital expenditure, preserving the substance of the existing tax position.

The existing rules permit any losses to be relieved as trading losses, ie sideways or backwards.

These rules are preserved under the new sched A, so that losses from furnished holiday lettings included with all other sched A income may be relieved sideways or backwards against general income.APPLICATION TO PARTNERSHIPSThe new current-year basis rules applicable to partnerships are applied to a sched A business.

Each partner will be assessed on his or her share of the sched A income, and there will be no deemed cessation on a change of partner.

The strict fiscal-year basis for sched A is modified so that there is a deemed second sched A trade coterminous with a sched D, case I trade.

Because a partnership business is distinct from that carried on by an individual, profits from one cannot be set against losses of the other.

If an individual is a member of two partnerships with sched A income, these partnerships will also be treated as distinct and separate businesses.