Unsure about the tax implications

[Deleted User]

Rodders2409 said:

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?
 

Yes - the personal allowance of 12570 is available to set against that pension income - the tax free withdrawal does not impact that. 

simon_or

Thanks purdy. I don't understand it but I'm sure you're right. I just go by what my accountant says and I don't think I've been in a similar situation with my rental income and finance costs in the past.

So am in correct in saying that the takeaway for the OP from that would be that tax-wise it would be more beneficial to him if his mortgage related costs were spread over the 2 years rather than a large lump-sum fee in year 1?

So assuming the total cost (interest + fees) is the same, a 5.8% no fee 2 year fix (or say a 5% with 4k fees) would save him more tax than a 4% 7k fee 2 year fix?

purdyoaten2 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.

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.

sheramber

Rodders2409 said:

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?
 

As long as they do not have any taxable  unearned income

Jeremy535897

Rodders2409 said:

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?
 

If they have no taxable income of any sort, then yes they can.

silvercar

Can I make an alternative suggestion?

Your son buys with you going on the mortgage for the time being. There are some lenders who are happy with 'one owner, 2 borrower' type mortgages. That way you don't have to worry about tax on rental income or a future sale and associated costs.

If your son has a stable job and income to pay the mortgage, but all that is lacking is sufficient mortgage to get the mortgage, this would be an easier way forward. If he bought a 2 bed property he could take a lodger for the second bedroom that would enable him to afford the property better.