Landlord self assessment query - relief on mortgage interest

wantawaylandlord

Hi all,

It's that time of year again... i hope everyone is filing happily!

I have completed my self assessment (not submitted) for my buy-to-let flat and it appears that i'm not getting the full 20% relief for finance costs. The "view your calculation" summary states:

- minus Relief for finance costs £8,180.00 reduced to maximum allowable
- Amount £6280.00
- Percentage x20%
- Total relief £1256.00

Can anyone advise why the 20% relief is being applied to my net profit rather than my finance costs? I believe the relief should be £1636 (£8180 x 20%)? 

And yes, as my username suggests, i'm very aware that my mortgage costs sadly outweigh my profit   !

poseidon1

Can only assume you have not been a landlord for very long, and are completely unaware of section 24 Finance Act (no. 2) 2015 - see below

https://www.axa.co.uk/landlord-insurance/guide-to-section-24-tax-changes/#:~:text=Under Section 24, landlords are now taxed,less valuable if you're a higher-rate taxpayer.

It was a penalous tax regime introduced by the Tories to specifically discourage higher rate BLT landlords by removing full  higher rate tax relief on mortgage interest  deductions, effectively taxing such landlords on non existent rental profits.

This regime has been partly responsible for many landlords selling up and leaving the sector, or incorporating limited companies to hold property in a corporate wrapper where section 24 does not apply. Evidently you did not get the 'memo'.

sheramber

wantawaylandlord said:

Hi all,

It's that time of year again... i hope everyone is filing happily!

I have completed my self assessment (not submitted) for my buy-to-let flat and it appears that i'm not getting the full 20% relief for finance costs. The "view your calculation" summary states:

- minus Relief for finance costs £8,180.00 reduced to maximum allowable
- Amount £6280.00
- Percentage x20%
- Total relief £1256.00

Can anyone advise why the 20% relief is being applied to my net profit rather than my finance costs? I believe the relief should be £1636 (£8180 x 20%)? 

And yes, as my username suggests, i'm very aware that my mortgage costs sadly outweigh my profit   !

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

How the tax reduction is worked out

The reduction is the basic rate value (currently 20%) of the lower of:

• finance costs - costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward
• property business profits - the profits of the property business in the tax year (after using any brought forward losses)
• adjusted total income - the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance

wantawaylandlord

Thank you both. Yep, i am an accidental landlord of two years, after i couldn't sell my flat. Thank you for the higher rate point, sadly that makes complete sense.