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Help with tax on interest charges

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anniesdad
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Help with tax on interest charges

#329794

Postby anniesdad » July 30th, 2020, 5:29 pm

Hi All,

I’m doing my tax return for year ending April 2020 and in a kerfuffle with section 24 finance act 2015 ( landlords tax)

Say that my rental income is £50k
And my finance cost is £10k
And say no other allowable expenses
What is my taxable income?

Thanks in advance

dealtn
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Re: Help with tax on interest charges

#329799

Postby dealtn » July 30th, 2020, 5:36 pm

anniesdad wrote:Hi All,

I’m doing my tax return for year ending April 2020 and in a kerfuffle with section 24 finance act 2015 ( landlords tax)

Say that my rental income is £50k
And my finance cost is £10k
And say no other allowable expenses
What is my taxable income?

Thanks in advance


Only a quarter of that interest cost is allowable as tax relief in the tax year 2019/20. Note it is "interest" which might be different to your mortgage payment that is used. If your buy-to-let mortgage (assuming that is what it is) is a "repayment" type, not an "interest-only" type you might to need to ensure you are using the right figure.

anniesdad
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Re: Help with tax on interest charges

#329804

Postby anniesdad » July 30th, 2020, 5:55 pm

Yes interest only btl mortgage

So taxable profit is £47.5 k ?

Thanks for prompt response. Your answer is what I feared

anniesdad
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Re: Help with tax on interest charges

#329836

Postby anniesdad » July 30th, 2020, 9:28 pm

I’m still puzzling over this. Looking on hmrc site ....

Tax at 20% on £47.5k is £9.5 k.

But it looks like there is something called 20% tax reduction for the remaining finance costs

20% x £7.5k is £1.5 k

So income tax is actually now going to be £8.0 k.

Have I got this right?

bluedonkey
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Re: Help with tax on interest charges

#329913

Postby bluedonkey » July 31st, 2020, 10:48 am

anniesdad wrote:I’m still puzzling over this. Looking on hmrc site ....

Tax at 20% on £47.5k is £9.5 k.

But it looks like there is something called 20% tax reduction for the remaining finance costs

20% x £7.5k is £1.5 k

So income tax is actually now going to be £8.0 k.

Have I got this right?

Yes. The intention of the rules is to deny anything other than 20% tax relief on rental interest charges. It's just that you asked what your taxable income is, which is different to asking what your tax bill is.


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