Unsure about the tax implications

simon_or

I don't know tbh, it's not so much the fees itself but the overall cost to you over two years - interest + fees.

If you were someone earning 30k in a PAYE job I'd say yes, you will get a better overall cost 2yr fix than that.

But given your income mix and the fact that it's primary rental income, I guess that limits the choice of lenders so this might well be the cheapest available.

Your broker knows more than me so if you trust their judgement, then go with that.

On the plus side, with the 20% tax credit on the £6.900 fees, you'll only have a net tax bill of a couple of hundred quid!

[Deleted User]

simon_or said:

I don't know tbh, it's not so much the fees itself but the overall cost to you over two years - interest + fees.

If you were someone earning 30k in a PAYE job I'd say yes, you will get a better overall cost 2yr fix than that.

But given your income mix and the fact that it's primary rental income, I guess that limits the choice of lenders so this might well be the cheapest available.

Your broker knows more than me so if you trust their judgement, then go with that.

On the plus side, with the 20% tax credit on the £6.900 fees, you'll only have a net tax bill of a couple of hundred quid!

I am not sure about that. Without the £6900 fees the tax bill was only £756. He could only benefit, therefore, from a deduction of that amount. The tax reduction cannot create a tax refund.

simon_or

I don't know if I've read it right but doesn't this mean that it can be carried forward to the next year?

"Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year."

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords#:~:text=Any excess finance costs may,business in the tax year.

Jeremy535897

simon_or said:

I don't know if I've read it right but doesn't this mean that it can be carried forward to the next year?

"Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year."

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords#:~:text=Any excess finance costs may,business in the tax year.

With uncommercial leases, the general rule is that you cannot create a loss, and you therefore cannot have any carry forward of unrelieved expenses. See: https://www.property-tax-portal.co.uk/properties-let-cheaply-what-are-the-tax-implications.shtml

 I suspect that the same rule would apply to unrelieved finance costs, but to establish that may take a fair bit of detailed work.

Rodders2409

Thanks Simon & Purdy,

Yes. because I'm basically a full time carer for my other half, who has critical medical challenges, my income is limited to carers allowance and some rental from a propery I've let out for 20+ years. My income sits at approx 11K....this seems to limit the available products.

I'll need to get y head around what you guys have discussed but obviously if I can also gain additional Tax credits through the Product fees when I sell to my son, then that's great...any way to reduce possible CGT is welcome.

In general, I'm looking at a £6K cost to doing this but I'll know my lad has a very decent start in a property I know is decent too. If he ever needs to cover costs he'll easily be able to rent out a decent double room etc...I appreciate it's got hassle attached to it in terms of managing tenants, but I've done that and it's 'only' for 2 yrs. 

[Deleted User]

simon_or said:

I don't know if I've read it right but doesn't this mean that it can be carried forward to the next year?

"Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year."

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords#:~:text=Any excess finance costs may,business in the tax year.

The part that you quote is not the same thing. That simply means that the amount of finance relievable at 20% is restricted to the rental profit. 

For example, 

 buy-to-let property income of £10,000 and their only rental expense is repairs of £2000 and mortgage interest of £20000. 

Property rental income £10000
Property rental profits (£10,000 -£2000 =£8000
Mortgage interest (limited to £8000 rental profits) x basic rate reduction percentage.
Basic rate tax relief (20% of £8000)
Finance costs carried forward (£20,000 - £8000) = £12000

 That is not the same as in your example where the mortgage finance costs are less than the profit - no carry forward available. The tax reduction cannot reduce the tax to a negative amount.

[Deleted User]

Jeremy535897 said:

simon_or said:

I don't know if I've read it right but doesn't this mean that it can be carried forward to the next year?

"Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year."

https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords#:~:text=Any excess finance costs may,business in the tax year.

With uncommercial leases, the general rule is that you cannot create a loss, and you therefore cannot have any carry forward of unrelieved expenses. See: https://www.property-tax-portal.co.uk/properties-let-cheaply-what-are-the-tax-implications.shtml

 I suspect that the same rule would apply to unrelieved finance costs, but to establish that may take a fair bit of detailed work.

I hope that I have dealt with your final paragraph above. Finance costs can be carried forward to the extent where they exceed the profit (actually the lower of the ‘profit’, finance costs and amount taxable over the personal allowance)- but this is not what is occurring with the op.
Example 4 looks best:

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies#example-4-carrying-forward-unused-finance-costs

Jeremy535897

To take a simple example, if your sole income in a year is rental income of £10,000, and your finance costs are £5,000, you can carry those finance costs forward, because there is no amount taxable over the personal allowance. In this one case, the new rules are actually better than the old ones, because under the old rules, the rental profit would have been reduced to £5,000. However, I don't think that this carry forward applies where the lease is uncommercial.

[Deleted User]

Jeremy535897 said:

To take a simple example, if your sole income in a year is rental income of £10,000, and your finance costs are £5,000, you can carry those finance costs forward, because there is no amount taxable over the personal allowance. In this one case, the new rules are actually better than the old ones, because under the old rules, the rental profit would have been reduced to £5,000. However, I don't think that this carry forward applies where the lease is uncommercial.

Yes - but, in the op’s case, I think that we agree that this does not apply as the finance costs are less than the profit. 

The separate issue is whether the tax reduction, after reducing the tax due to zero, is able to be claimed. It isn’t. 

Rodders2409

Woooooooooshhhh......that's the sound of this as it passes over my head 😊, but I'll let you guys debate the finer points !

But whilst I've got you guys...

Can a person with a full years unused personal allowance, because they're not in any employment, withdraw their 25% (10K) from SIPP tax free PLUS another 12K tax free against their unused PA?