form r85 and interest only mortgage

mike987654321

Assuming someone had no employment income and their only income was from a tenanted residential property (say £800 pcm) and bank accounts, with the latter being minimal.

in previous years the income earned from the residential property was over the annual income tax personal allowance.

now though, the property has been mortgaged and due to the mortgage being an interest only mortgage, the income will be wholly offset by the mortgage payments.

this will mean that in actual fact no income tax will be paid in that year.
however the form r85 asks you to declare:
1) whether "your income is below your annual tax-free income limit" - it is not, the income is still £800 pcm (i.e. £9,600 pa), over the personal allowance of £6,035.
2) that "my income is below my annual tax-free income limit" - again, not true.

however, no tax will actually be payable this year.

it seems illogical that in these circumstances it would not be possible to get the interest payable by the banks to be paid tax free, as the tax will be repaid through the annual tax return.

should i complete the form r85 - the net effect will be the same but it would seem that false declarations would be made?

thank you

Reaper

If you interpret "income" to mean "taxable income" then you are ok. Otherwise you will just have to do a tax return at the end of the year to claim it back instead.

Unless somebody here knows for sure I'd suggest a phone call to your tax office.