Tax on Rental property

LEP

Can someone confirm the situation with tax on income from a rental property for my situation. For the first time I will make a loss on the the properties I rent out. Does this automatically mean none of the income is looked at for tax purposes i.e. HMRC won't look at the tax deductible and tax relief (the 20% 'rebate') portions of my expenses separately as they normally do? 

Below is a breakdown:

Income - £10973

Expenses - £12534 broken down by

• Tax deductible - £5642
• Tax Relief - £6892

Basically will they see I made a loss of £1561 and I will therefore none of my rental income will be considered for tax calcuations in this financial year. The reason I ask is that I always keep my taxable income just below 50k to not incur the de facto 60% tax rate due to child benefit losses when earnings go above this. I have a large bonus coming next month and want to work out how much to put into my pension to keep me below the 50k mark....

Thanks

Dazed_and_C0nfused

Sorry but that makes no sense to me.

Are your eligible expenses £5642?

What exactly does the £6892 represent?

[Deleted User]

Dazed_and_C0nfused said:

Sorry but that makes no sense to me.

Are your eligible expenses £5642?

What exactly does the £6892 represent?

I think the op believes that there is a loss as the expenses plus the mortgage interest is greater than the income - which, as you know, is incorrect. There is no loss. 

The profit is 10973 - 5642 which is 5331. 

You can then claim a deduction of £1066.20 (5331 @20%) as a tax credit. The remaining 1561 can be carried forward to future years.

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

LEP

[Deleted User] said:

Dazed_and_C0nfused said:

Sorry but that makes no sense to me.

Are your eligible expenses £5642?

What exactly does the £6892 represent?

I think the op believes that there is a loss as the expenses plus the mortgage interest is greater than the income - which, as you know, is incorrect. There is no loss. 

The profit is 10973 - 5642 which is 5331. 

Ok so HMRC assumes I made a profit because it does not include mortgage Interest/arrangement fees when looking at my profit/loss.

So they will add 5331 to my PAYE earnings to calculate my taxable income and then calculate mortgage tax relief from this?

So in effect I will not be paying any tax this year on rental income providing my PAYE + 5331 stays below the 40% tax band?

Would the fact the tax relief takes me into 'negative' territory mean I'd get a tax rebate of sorts?

[Deleted User]

LEP said:

[Deleted User] said:

Dazed_and_C0nfused said:

Sorry but that makes no sense to me.

Are your eligible expenses £5642?

What exactly does the £6892 represent?

I think the op believes that there is a loss as the expenses plus the mortgage interest is greater than the income - which, as you know, is incorrect. There is no loss. 

The profit is 10973 - 5642 which is 5331. 

Ok so HMRC assumes I made a profit because it does not include mortgage Interest/arrangement fees when looking at my profit/loss.

So they will add 5331 to my PAYE earnings to calculate my taxable income and then calculate mortgage tax relief from this?

So in effect I will not be paying any tax this year on rental income providing my PAYE + 5331 stays below the 40% tax band?

Would the fact the tax relief takes me into 'negative' territory mean I'd get a tax rebate of sorts?

You appear correct in all of that but the last point - those changes really were significant!

No rebate - just a carry forward to the following year.

Dazed_and_C0nfused

So they will add 5331 to my PAYE earnings to calculate my taxable income and then calculate mortgage tax relief from this?

Don't forget that the £5,331 is part of your adjusted net income, which is used to calculate any High Income Child Benefit Charge due.

I don't believe the finance costs tax credit is part of the ANI calculation.

LEP

[Deleted User] said:

LEP said:

[Deleted User] said:

Dazed_and_C0nfused said:

Sorry but that makes no sense to me.

Are your eligible expenses £5642?

What exactly does the £6892 represent?

I think the op believes that there is a loss as the expenses plus the mortgage interest is greater than the income - which, as you know, is incorrect. There is no loss. 

The profit is 10973 - 5642 which is 5331. 

Ok so HMRC assumes I made a profit because it does not include mortgage Interest/arrangement fees when looking at my profit/loss.

So they will add 5331 to my PAYE earnings to calculate my taxable income and then calculate mortgage tax relief from this?

So in effect I will not be paying any tax this year on rental income providing my PAYE + 5331 stays below the 40% tax band?

Would the fact the tax relief takes me into 'negative' territory mean I'd get a tax rebate of sorts?

You appear correct in all of that but the last point - those changes really were significant!

No rebate - just a carry forward to the following year.

That makes sense. Thanks

LEP

Dazed_and_C0nfused said:

So they will add 5331 to my PAYE earnings to calculate my taxable income and then calculate mortgage tax relief from this?

Don't forget that the £5,331 is part of your adjusted net income, which is used to calculate any High Income Child Benefit Charge due.

I don't believe the finance costs tax credit is part of the ANI calculation.

Yes of course..... the thought of losing circa 60% of any of my income breaks me out in a cold sweat!