Interest expense on tax return - how to obtain?

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    Interest expense on tax return - how to obtain?

    I will be filling out a 2019/20 SA tax return (my first time!) and will need to declare the income from my buy to let property. The property is on a residential mortgage as it was my home but since last year I have let it out with my lender's permission. I was and continue to be a basic rate tax payer so am allowed to use interest for tax relief purposes. The question I have is how do I work out the interest expense since my mortgage is a repayment one?

    Is it done on a cash basis and if so how do I calculate the interest as all I have are statements showing total monthly payments made and the total interest - interest is not broken down month by month. Also I only receive statements annually so would not have anything for Jan-April 2020 except maybe what I can see in online for the mortgage account.

    Could I ask the lender (NW) for a further breakdown and latest statement?

    Thanks

    #2
    You should be able to, yes. Every year around April/May I request a mortgage statement for the previous financial year from my bank. Never a problem. This used to be hard copy, but now they will do it by email.
    There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

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      #3
      Well worth getting a book on property tax: There are more than 12 taxes a landlord may pay. It will very likely save you more in time & money than it costs to get & read: e.g. (there are others..)
      https://www.amazon.co.uk/gp/product/191102051X
      I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

      Comment


        #4
        You can request a statement for interest paid for the tax year from 6 April 2019 to 5 April 2020 from your mortgage lender.

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          #5
          Capital sum owing x the interest rate equals the interest only figure. So a 100k mortgage on 3.2 per cent equals £3200 interest only per year.

          Comment


            #6
            Thanks, will speak to the lender to see if I can get a statement showing the interest paid for the tax year. I did have another question. I understand I can use cash basis rather then accrual basis for the tax return. I let out my flat starting a month into the tax year (as mentioned before I used to live in it). How do i account for the interest in this case since it was paid prior to letting it out as well as after?

            Job66 - if it were as easy as that I would do it myself but I had started letting my property a month into the tax year and there have been numerous interest rate changes, both will complicate things a bit hence why its just easier to ask the lender.

            Comment


              #7
              You should report the same interest figure as the mortgage lender may be reporting to hmrc.

              On the blank page in your tax return you can make a declaration the mortgage interest was ££££ for 2019-2010 plus xxxx for 2018-2019.

              Comment


                #8
                Originally posted by Jon66 View Post
                Capital sum owing x the interest rate equals the interest only figure. So a 100k mortgage on 3.2 per cent equals £3200 interest only per year.
                Except that the capital sum owing reduces with each payment.
                There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

                Comment


                  #9
                  Originally posted by leasee123 View Post
                  Thanks, will speak to the lender to see if I can get a statement showing the interest paid for the tax year. I did have another question. I understand I can use cash basis rather then accrual basis for the tax return. I let out my flat starting a month into the tax year (as mentioned before I used to live in it). How do i account for the interest in this case since it was paid prior to letting it out as well as after?

                  Job66 - if it were as easy as that I would do it myself but I had started letting my property a month into the tax year and there have been numerous interest rate changes, both will complicate things a bit hence why its just easier to ask the lender.
                  You can't use the calculation for an interest only mortgage on a repayment mortgage, it doesn't work the same way.

                  You claim the interest from the period prior to the first let as though it occurred on the first day of the first tenancy (which is when your business began).
                  Same as any other pre-letting expenses.
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    Originally posted by leasee123 View Post
                    I was and continue to be a basic rate tax payer so am allowed to use interest for tax relief purposes.
                    To be clear, everyone (whether their marginal tax rate is at basic, higher or additional rate) continues to report mortgage interest in the same way, and it is treated in the same way for tax purposes. It is just that new way in which it is treated (as a tax reducer of 20% of the interest rather than it being tax deductible) will be more deleterious in its effect to higher/additional rate taxpayers (as well as those basic rate taxpayers who're dragged into the higher rate band through these changes).

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                      #11
                      Just for the avoidance of doubt, the way the interest is reported does actually change.

                      Allowable interest (while in the transition period) is recorded as such (in Box 26) and the restricted element goes in a separate entry (Residential finance costs not included in box 26).
                      The allowable element is treated as any other expense and tax due calculated, the restricted element *20% is then deducted from the tax due.

                      After this tax year, there will be no transition adjustment so all of the finance costs will be treated as restricted.
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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                        #12
                        Thanks for all the replies, much appreciated. I am still confused however as to what interest to report in the tax return. The property was let for the first time last year say 1st June after having lived there myself for a number of years until end of April last year. My mortgage is paid monthly on the 15th both the capital repayment and interest. It is a residential mortgage.

                        Do I need to calculate the interest accrued from the 1st June till my first mortgage payment as a BTL (i.e. 50% of the interest component paid) and then simply add the interest for all subsequent months in full until the end of the tax year (another interest accrued calculation done for the last month)?

                        Or do I do it on a cash basis so that its all the monthly interest I paid to the lender AFTER the property was let so from June 15th mortgage payment onwards till March 15th of this year?

                        Since the mortgage is a residential, why and what would the lender report to HMRC?

                        Comment


                          #13
                          If you're reporting on the cash basis, you record the costs as having been incurred when they happen.
                          So no accrual is needed.

                          The exception to the costs being recorded as incurred is interest between when you moved out and when the first tenancy began.
                          As you're working on a cash basis, the interest element of the payment made on 15th May would be treated as having happened on June 1st (the 1st day of the 1st tenancy).

                          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                          Comment


                            #14
                            Thanks so much jpkeates for clearing that up. Just so I completely understand - say I left the property instead one day prior to the start of the let - i.e. 31st May, would I report the interest paid on the mortgage on 15th May or does it instead start from 15th June? I am pretty sure it is the former but just want to double check.

                            Thanks for the above post #11 also; will keep that in mind when filling in the return. As a 20% taxpayer overall it would not make a difference to the amount of tax I will pay but good to know how to do fill it out properly.

                            Comment


                              #15
                              Originally posted by jpkeates View Post
                              Just for the avoidance of doubt, the way the interest is reported does actually change.
                              Thank you for clarifying -- my wording was perhaps a bit unclear. When I said "everyone (whether their marginal tax rate is at basic, higher or additional rate) continues to report mortgage interest in the same way", I meant that there haven't been separate reporting systems introduced depending on which tax band you are in (which would be impossible anyway, as some people wouldn't know which band they are in until after they submit their self-assessment!). However as you state the manner in which finance costs are reported is, of course, changing significantly for everyone over the transition period!

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