R03 Direct property investment: free practice questions

1. Question 1 of 5

   Which basis is used by default for a landlord with rental income of £80,000?

   Option A: Whichever basis HMRC choosesOption B: The accruals basis, as for all landlordsOption C: The accruals basis, unless they opt for the cash basisOption D: The cash basis, unless the landlord opts for accruals

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   The answer is D: The cash basis, unless the landlord opts for accruals

   Where rental income doesn't exceed £150,000, the cash basis is the default, with an option to use accruals. Income from all UK properties is pooled; overseas property is pooled separately.

   Why the other options are wrong

   A

   The landlord can opt out of the default.

   B

   Cash basis is the default for smaller landlords.

   C

   The cash basis is the default up to £150,000.

2. Question 2 of 5

   Which spending on a let flat can NOT be deducted from rental income?

   Option A: Building an extension to add a bedroomOption B: Landlord's buildings insuranceOption C: Fixing a leaking roofOption D: A letting agent's management fees

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   The answer is A: Building an extension to add a bedroom

   Repairs, agents' fees, insurance, rates and services paid by the landlord are deductible. Improvements and alterations, and costs of making a newly bought property fit to let, are capital.

   Why the other options are wrong

   B

   Insurance premiums are deductible.

   C

   Repairs are deductible.

   D

   Management fees are deductible.

3. Question 3 of 5

   How is a loss on a residential letting business normally relieved?

   Option A: It is lostOption B: Carried back three yearsOption C: Set against the landlord's other income of the same yearOption D: Carried forward automatically against future letting profits

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   The answer is D: Carried forward automatically against future letting profits

   Property losses are carried forward automatically against future property profits. Only the part due to capital allowances can be set against other income of the same year.

   Why the other options are wrong

   A

   It's carried forward automatically.

   B

   There's no carry-back.

   C

   Only the capital allowance part can be set against other income.

4. Question 4 of 5

   Which of these lettings can qualify for rent a room relief? 1. A furnished room in the owner's main home in Leeds 2. A self-contained flat in the owner's garden 3. A furnished room in the owner's home in Spain 4. A furnished room in a home shared by a married couple who both receive the rent

   Option A: 1 and 4 onlyOption B: 1 onlyOption C: 1, 2 and 4 onlyOption D: 1, 3 and 4 only

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   The answer is A: 1 and 4 only

   Rent a room relief covers furnished accommodation in the person's UK main residence, not self-contained units or business use. If two people receive rent, each gets £3,750.

   Why the other options are wrong

   B

   A couple can each claim, with the limit split to £3,750 each.

   C

   Self-contained units don't qualify.

   D

   The property must be in the UK.

5. Question 5 of 5

   Which of these can a landlord deduct from residential rental income? 1. Letting agent fees 2. Landlord's insurance premiums 3. The cost of an extension 4. Council tax paid while the property is between tenants

   Option A: 1, 2 and 4 onlyOption B: 1 and 2 onlyOption C: 1, 2, 3 and 4Option D: 2, 3 and 4 only

   Show answer

   The answer is A: 1, 2 and 4 only

   Agents' fees, insurance, council tax and utilities paid by the landlord, repairs and services are deductible. Improvements such as extensions aren't.

   Why the other options are wrong

   B

   Council tax paid by the landlord is also deductible.

   C

   An extension is a capital improvement.

   D

   The extension isn't deductible; agent fees are.

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