Relief for finance cost on BTL

Dazed_and_C0nfused

AskAsk said:

[Deleted User] said:

Maybe reading this incorrectly but if the amount upon which you are liable to tax is £1717 in the final calculation you can only claim interest relief on £1717, reducing the tax to zero. 

Not clear from the explanation provided.

The £1,717 is the item in the "view your calculation" print out under Pay, pensions, profit etc that is subject to 20% tax.  The rest of the income is taxed at other rates as my total taxable income for the year is £55,951 after the personal allowance deduction.

I think you need to clarify how the two statements above and below can both be correct 🤔

The profit was £8,214

[Deleted User]

The relief should be 20% of £5324 - £1064.80. Is this shown anywhere on the calculation?

AskAsk

Dazed_and_C0nfused said:

AskAsk said:

[Deleted User] said:

Maybe reading this incorrectly but if the amount upon which you are liable to tax is £1717 in the final calculation you can only claim interest relief on £1717, reducing the tax to zero. 

Not clear from the explanation provided.

The £1,717 is the item in the "view your calculation" print out under Pay, pensions, profit etc that is subject to 20% tax.  The rest of the income is taxed at other rates as my total taxable income for the year is £55,951 after the personal allowance deduction.

I think you need to clarify how the two statements above and below can both be correct 🤔

The profit was £8,214

The profit of £8,214 is in the section of how taxable income is calculated.  The £1,717 is the figure that appears in the section where tax is calculated, and it allocates that amount to profit for the tax calculation for basic rate.

There are other items under basic rate but they don't fall into the "profit" section for the relief to apply.

AskAsk

[Deleted User] said:

The relief should be 20% of £5324 - £1064.80. Is this shown anywhere on the calculation?

It states "minus relief for finance cost £5,324 reduced to maximum allowable"  = £1,717 x 20% = £343.40

Dazed_and_C0nfused

AskAsk said:

Dazed_and_C0nfused said:

AskAsk said:

[Deleted User] said:

Maybe reading this incorrectly but if the amount upon which you are liable to tax is £1717 in the final calculation you can only claim interest relief on £1717, reducing the tax to zero. 

Not clear from the explanation provided.

The £1,717 is the item in the "view your calculation" print out under Pay, pensions, profit etc that is subject to 20% tax.  The rest of the income is taxed at other rates as my total taxable income for the year is £55,951 after the personal allowance deduction.

I think you need to clarify how the two statements above and below can both be correct 🤔

The profit was £8,214

The profit of £8,214 is in the section of how taxable income is calculated.  The £1,717 is the figure that appears in the section where tax is calculated, and it allocates that amount to profit for the tax calculation for basic rate.

There are other items under basic rate but they don't fall into the "profit" section for the relief to apply.

Why not post a screenshot of the calculation?  Otherwise we could be here a while!

Dazed_and_C0nfused

Bookworm105 said:

AskAsk said:

Bookworm105 said:

how much is the profit ?
relief is restricted to lower of profits x 20% or finance cost x 20%
unused costs then carried forward 

The profit was £8,214 so it seems odd.  The restriction seems to be related to the amount of income that I pay basic rate tax on.  I did see that you can carry any unused finance costs that had not been relieved to the next year, but it doesn't help that I am selling the property in the next year so there is little profit to declare!

that is possibly correct as people often overlook the 3rd element of the restriction: total income net of personal allowance
so if your employment + self employment income + interest + rental profits less personal allowance = 1717 then that is the restricted amount for the tax relief calculation 

Good point but the op did say this earlier,

my total taxable income for the year is £55,951 after the personal allowance deduction.

[Deleted User]

Bookworm105 said:

AskAsk said:

Bookworm105 said:

how much is the profit ?
relief is restricted to lower of profits x 20% or finance cost x 20%
unused costs then carried forward 

The profit was £8,214 so it seems odd.  The restriction seems to be related to the amount of income that I pay basic rate tax on.  I did see that you can carry any unused finance costs that had not been relieved to the next year, but it doesn't help that I am selling the property in the next year so there is little profit to declare!

that is possibly correct as people often overlook the 3rd element of the restriction: total income net of personal allowance
so if your employment + self employment income + interest + rental profits less personal allowance = 1717 then that is the restricted amount for the tax relief calculation 

That’s where I was going until the op stated income elsewhere of £55000.

Bookworm105

AskAsk said:

[Deleted User] said:

Maybe reading this incorrectly but if the amount upon which you are liable to tax is £1717 in the final calculation you can only claim interest relief on £1717, reducing the tax to zero. 

Not clear from the explanation provided.

The £1,717 is the item in the "view your calculation" print out under Pay, pensions, profit etc that is subject to 20% tax.  The rest of the income is taxed at other rates as my total taxable income for the year is £55,951 after the personal allowance deduction.

that is possibly correct as people often overlook the 3rd element of the restriction: "adjusted net income" ie total income net of personal allowance (note that excludes savings interest and dividends) 

so if your employment + self employment income + rental profits less personal allowance = 1717 (ignoring savings interest & dividends) then that is the restricted amount for the tax relief calculation 

Tax relief for residential landlords: how it's worked out - GOV.UK (www.gov.uk)

[Deleted User]

AskAsk said:

[Deleted User] said:

Maybe reading this incorrectly but if the amount upon which you are liable to tax is £1717 in the final calculation you can only claim interest relief on £1717, reducing the tax to zero. 

Not clear from the explanation provided.

The £1,717 is the item in the "view your calculation" print out under Pay, pensions, profit etc that is subject to 20% tax.  The rest of the income is taxed at other rates as my total taxable income for the year is £55,951 after the personal allowance deduction.

I don’t understand this. How could only £1717 of income from pay, pensions or profits only be subject to 20% tax?

What is the other income? CGT? Dividends? Interest?

AskAsk

Bookworm105 said:

AskAsk said:

[Deleted User] said:

Maybe reading this incorrectly but if the amount upon which you are liable to tax is £1717 in the final calculation you can only claim interest relief on £1717, reducing the tax to zero. 

Not clear from the explanation provided.

The £1,717 is the item in the "view your calculation" print out under Pay, pensions, profit etc that is subject to 20% tax.  The rest of the income is taxed at other rates as my total taxable income for the year is £55,951 after the personal allowance deduction.

that is possibly correct as people often overlook the 3rd element of the restriction: "adjusted net income" ie total income net of personal allowance (note that excludes savings interest and dividends) 

so if your employment + self employment income + rental profits less personal allowance = 1717 (ignoring savings interest & dividends) then that is the restricted amount for the tax relief calculation 

Tax relief for residential landlords: how it's worked out - GOV.UK (www.gov.uk)

I think I have worked it out.  My basic rate allowance is £41,300 and they have given most of this to the savings and securities interest.  If they were to increase this £1,717 it would mean more of the savings interest would be pushed into the 40% tax band instead of the 20% tax band, so I would end up paying the same amount of tax in reality.

This way, I can carry forward the unrelieved finance costs to the next year, which unfortunately, doesn't help me here as I won't have any income to declare next year for the property.