Landlord self-assessment help

Syandc

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

Syandc

Btw forgot to mention that I am a basic tax rate payer.

silvercar

My understanding is that you can’t claim the tax credit of 20% of the mortgage interest if you use the £1,000 property allowance.

Try this calculator and see what results you get: https://taxscouts.com/calculator/rental-income-tax/

make sure you enter the mortgage payments in the ‘other finance’ box on your tax return. That will reduce the tax by 20% of the mortgage interest, that will credit you with £637 to reduce the tax owed.

Dazed_and_C0nfused

Syandc said:

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

You cannot usually claim finance costs as an expense against rental income.

If your income was £5,025 and you are claiming the property allowance that will leave £4,025 liable to tax.

Which could be ~£800 in tax for a basic rate payer.

But could the £4,025 tip you into higher rate territory?

Without the full details from your return it's impossible to know where the issue (if there is one) is.

Have you checked the liability with £0 rental profit as a starting point?

silvercar

Dazed_and_C0nfused said:

Syandc said:

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

You cannot usually claim finance costs as an expense against rental income.

If your income was £5,025 and you are claiming the property allowance that will leave £4,025 liable to tax.

Which could be ~£800 in tax for a basic rate payer.

But could the £4,025 tip you into higher rate territory?

Without the full details from your return it's impossible to know where the issue (if there is one) is.

Have you checked the liability with £0 rental profit as a starting point?

Instead you get a tax credit of 20% of the mortgage costs, so all is not lost - particularly for a 20% tax payer.

Syandc

Dazed_and_C0nfused said:

Syandc said:

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

You cannot usually claim finance costs as an expense against rental income.

If your income was £5,025 and you are claiming the property allowance that will leave £4,025 liable to tax.

Which could be ~£800 in tax for a basic rate payer.

But could the £4,025 tip you into higher rate territory?

Without the full details from your return it's impossible to know where the issue (if there is one) is.

Have you checked the liability with £0 rental profit as a starting point?

Thanks for your response. What do you mean checked the liability with £0 rental profit as a starting point? Should I recalculate with 0 to see what happens?

Syandc

silvercar said:

Dazed_and_C0nfused said:

Syandc said:

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

You cannot usually claim finance costs as an expense against rental income.

If your income was £5,025 and you are claiming the property allowance that will leave £4,025 liable to tax.

Which could be ~£800 in tax for a basic rate payer.

But could the £4,025 tip you into higher rate territory?

Without the full details from your return it's impossible to know where the issue (if there is one) is.

Have you checked the liability with £0 rental profit as a starting point?

Instead you get a tax credit of 20% of the mortgage costs, so all is not lost - particularly for a 20% tax payer.

 

Thank you! How do I opt for the tax credit instead of the £1000 allowance in the calculator? 

Bookworm105

you cannot claim both the property allowance and the tax credit for the mortgage interest. The allowance is a replacement for all and any actual expenses, including mortgage
 
Is this your first rental income tax return? You seem ignorant of the fact the mortgage is not a deduction from income, it is a credit against tax owed. Also are you certain 3,183 is the interest element only and excludes any capital repayment element?

if you claim the allowance, your tax is 4,025x20% = £805 
to get a result of 1025 implies at least some of it is being taxed at the higher rate?

if you do not claim the allowance, your taxable profit is 5,025 (you have not given any info regarding other costs, if you have them, then you can deduct them, bit not the mortgage) so tax = 1,005 against which you then get a tax credit of 3183 x 20% = 636.60 leaving you with net tax payable of 1005 - 636.6 = 368.40

silvercar

Syandc said:

silvercar said:

Dazed_and_C0nfused said:

Syandc said:

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

You cannot usually claim finance costs as an expense against rental income.

If your income was £5,025 and you are claiming the property allowance that will leave £4,025 liable to tax.

Which could be ~£800 in tax for a basic rate payer.

But could the £4,025 tip you into higher rate territory?

Without the full details from your return it's impossible to know where the issue (if there is one) is.

Have you checked the liability with £0 rental profit as a starting point?

Instead you get a tax credit of 20% of the mortgage costs, so all is not lost - particularly for a 20% tax payer.

 

Thank you! How do I opt for the tax credit instead of the £1000 allowance in the calculator? 

Don’t claim the property allowance, instead put in your actual expenses - there must be some eg insurance, gas safety certificate.

Then you put the mortgage interest in the finance box (box 44 according to another thread on here, but I don’t have a tax return in front of me to check)

[Deleted User]

Syandc said:

silvercar said:

Dazed_and_C0nfused said:

Syandc said:

Hi, I am looking for some help regarding my self-assessment. I must be doing something wrong as the calculation is coming out too high. My rental income for 23/24 was £5025, my mortgage payments were £3183, giving a profit of £1843. But my tax is showing as £1025. I want to use the £1000 property allowance rather than expenses/finance costs. To this end I have entered £1000 in the property allowance box and not entered anything under expenses. Does anyone understand this or can offer any guidance? Tia 

You cannot usually claim finance costs as an expense against rental income.

If your income was £5,025 and you are claiming the property allowance that will leave £4,025 liable to tax.

Which could be ~£800 in tax for a basic rate payer.

But could the £4,025 tip you into higher rate territory?

Without the full details from your return it's impossible to know where the issue (if there is one) is.

Have you checked the liability with £0 rental profit as a starting point?

Instead you get a tax credit of 20% of the mortgage costs, so all is not lost - particularly for a 20% tax payer.

 

Thank you! How do I opt for the tax credit instead of the £1000 allowance in the calculator? 

As others have said - put the actual expenses in boxes 24-29, ignoring box 26. Enter the mortgage interest (not payments) in box 44. 

https://assets.publishing.service.gov.uk/media/65f9777e703c42001a58ef11/SA105_2024.pdf

FlorayG

OP are you aware you pay tax on the INCOME not the PROFIT?