Rental Property and Mortgage interest relief

sb94707

and a question on marriage allowance transfer -
All was set up and correct last year.
On the wife SA form, I understand I dont need to make any mention of marriage transfer - in fact it wont let me enter "yes" to that question anyway. Get the message tried 3 times etc etc
The calcaulation - does not show the allowance transfer ? is that correct ? will it update later on before the due date of 31/1/2020. so I just submit the form as is ?

My SA calculation also doesnt show the mmariage allowance transfer I should receive. Again do I just submit my form, and hope that the figures will correct themselves before 31/1/2020 ..
thanks

silvercar

When you enter the mortgage interest amount (and the litte "i" button reminds you to enter half the mortgage interest on the 2018/19 assessment) a red warning box appears when you save that page. The box asks that you check you have only entered half the total mortgage interest. So you have to submit that page a second time for the warning box to disappear. Really does help you to make sure you don't enter it wrongly.

sb94707

Thanks Silvercar - I was hoping that was the case, but I was confused because I dont get that warning on my tax return. so thought I was doing something wrong. The warning states: "WARNING: Please check and AMEND the entry below".. for the box titles "loan interest and other financial cost"

wife has no income apart from rental, and thought that the form wouldnt allow anything in this box because of the rules..below. which would be the 3rd part in my case i.e. so zero

The reduction is the basic rate value (currently 20%) of the lower of:

finance costs - costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward
property business profits - the profits of the property business in the tax year (after using any brought forward losses)
adjusted total income - the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance

00ec25

sb94707 wrote: »

wife has no income apart from rental, and thought that the form wouldnt allow anything in this box because of the rules..below. which would be the 3rd part in my case i.e. so zero


adjusted total income - the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance

please can you confirm your calculation because, as you say, the restriction is linked to adjusted net income and therefore it is possible that your wife will have carried forward "unused" finance costs

as she has no other income than the rental profit, if that means her taxable profit before interest rate relief is less than the personal allowance then yes, the tax relief is not available and has to be carried over.
In other words you cannot use tax relief to create a loss upon which to claim a tax refund. Instead you carry over the relief to reduce future profits - which may of course mean she is in an endless cycle until her net adjusted income is positive

see example 4
https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

there is a hideously complex explanation given in the manual
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2058

sb94707

hi ooec25.
Didnt have the warning last year when the finance split was 75/25 %.
This year (18/19 SA form) the split is 50/50%.

The wife has no other income apart from rental. so if loan interest is £100 for example. i put £50 in "Loan interest and other financial costs",
[NOTE i get warning..but can continue - silvercar did say thet this was just a reminder ??]

and the remaining £50 in the "residential finance cost not included..."
[Note no warning here]

so when yu say "the tax relief is not available and has to be carried over." are you referring to the "loan interest and other financial costs" ? i though 50% should be allowed
or
"residential finance cost" ? but im not getting warning here ?

and the example are way too confusing..

appreciate you help.

sb94707

sb94707 wrote: »

and a question on marriage allowance transfer -
All was set up and correct last year.
On the wife SA form, I understand I dont need to make any mention of marriage transfer - in fact it wont let me enter "yes" to that question anyway. Get the message tried 3 times etc etc
The calcaulation - does not show the allowance transfer ? is that correct ? will it update later on before the due date of 31/1/2020. so I just submit the form as is ?

My SA calculation also doesnt show the mmariage allowance transfer I should receive. Again do I just submit my form, and hope that the figures will correct themselves before 31/1/2020 ..
thanks

Any help on this also appreciated.

silvercar

The wife has no other income apart from rental. so if loan interest is £100 for example. i put £50 in "Loan interest and other financial costs",
[NOTE i get warning..but can continue - silvercar did say thet this was just a reminder ??]

Yes, hitting submit or save the second time and the reminder goes away and your results are saved.

00ec25 wrote:

as she has no other income than the rental profit, if that means her taxable profit before interest rate relief is less than the personal allowance then yes, the tax relief is not available and has to be carried over.
In other words you cannot use tax relief to create a loss upon which to claim a tax refund. Instead you carry over the relief to reduce future profits - which may of course mean she is in an endless cycle until her net adjusted income is positive

So she keeps carrying over, when will she see benefit from this? When she is a tax payer or a higher rate payer?

I'm suffering because my PAYE is under the personal allowance but dividend income takes it over the limit. So my dividend income is getting taxed at 7.5% I'm not able to put the 50% mortgage interest against this dividend tax.
I moaned about this [URL="https://forums.moneysavingexpert.com/discussion/5949937year[/URL]

Not sure if I should be carrying it forward, but until when??

sb94707

on the marriage allowance issue. Ive just seen this.. a post by Dori2o - hope it helps..

Where BOTH the RECIPIENT and the TRANSFEROR are in SA, the RECIPIENT will receive a credit of £212 on their SA statement once the TRANSFEROR has submitted their tax return with the correctly completed Marriage Allowance section completed.

Where the TRANSFEROR is in SA but the RECIPIENT is not, the relief will be given by way of an additional allowance in the tax code.

Where the RECIPIENT is in SA but the TRANSFEROR is not, a credit of £212 will be introduced onto the Recipients SA statement once the tax return is completed assuming a claim for Marriage Allowance has been made already.

Where neither is in SA the claim is dealt with by way of tax code adjustments.

In all cases the initial Marriage Allowance claim must have been made outside of SA. You CAN NOT make a first time/initial Marriage Allowance claim directly on the SA return, you must complete the process either online or over the phone to set up the link between the 2 taxpayers otherwise the record won't be linked and no credits/code changes will take place.

sb94707

Quote:
The wife has no other income apart from rental. so if loan interest is £100 for example. i put £50 in "Loan interest and other financial costs",
[NOTE i get warning..but can continue - silvercar did say thet this was just a reminder ??]

Yes, hitting submit or save the second time and the reminder goes away and your results are saved.

@Silvercar..Should I actually be entering the £50 here at all ?? As I have no income going over the personal allowance

00ec25

sb94707 wrote: »

hi ooec25.
Didnt have the warning last year when the finance split was 75/25 %.
This year (18/19 SA form) the split is 50/50%.

The wife has no other income apart from rental. so if loan interest is £100 for example. i put £50 in "Loan interest and other financial costs",
[NOTE i get warning..but can continue - silvercar did say thet this was just a reminder ??]

and the remaining £50 in the "residential finance cost not included..."
[Note no warning here]

so when yu say "the tax relief is not available and has to be carried over." are you referring to the "loan interest and other financial costs" ? i though 50% should be allowed
or
"residential finance cost" ? but im not getting warning here ?

and the example are way too confusing..

appreciate you help.

as per the link I gave you
How the tax reduction is worked out
The reduction is the basic rate value (currently 20%) of the lower of:

a) finance costs - costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward

b) property business profits - the profits of the property business in the tax year (after using any brought forward losses)

c) adjusted total income - the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance

The tax reduction can’t be used to create a tax refund.

she has rent of 14,000
finance costs of 3000

50% allowed in computing the profit, so profit 14-1.5 = 12.5

the remaining 50% is subject to the restriction. so lower of
a) finance costs 3,000 x 50%
b) property profit 12,500 x 50%
c) adjusted income: profits - less PA 12.5 = 12.5 x 50% = 0

finance costs to be carried forward 3,000 - 1,500 = 1,500