Interest expense on tax return - how to obtain?

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  • leasee123
    replied
    Thanks Gordon999 - that is very helpful to know.

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  • Gordon999
    replied
    I agree with 11/12ths interest figure for finance costs because the tax year starts on 6 April. .

    If you are completing a SA200 -2020 ( short tax return form) :

    ( a) box 6.2 is for "expenses allowable for tax" . You can include the property maintenance expenses plus 25% of the loan interest

    (b) box 6.6 is for "finance costs not included in box 6.2" , you enter 75% of loan interest.

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  • leasee123
    replied
    Thanks jpkeates, will use 11/12ths interest as it should be conservative as you mention.

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  • jpkeates
    replied
    The amount of interest that you pay reduces slightly each month, as the mortgage is repaid (ever so slowly!), so if you just apportion the interest over the period after 30th April you'll be slightly overstating the interest (although the difference is probably minuscule.

    I'd probably say use 11/12ths of the interest for the tax calculation - but I am extremely cautious with this kind of thing (and its not my money!)

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  • leasee123
    replied
    So I have received the "certificate of loan interest paid" from my lender. It just appears to state the amount of interest I paid for the 19/20 tax year with no breakdown by month.

    The current let is the first and only let I have had which started on 1st June 2019. I had previously lived at the property until I moved out on 30th April. My mortgage payments are taken on the 15th of every month (interest + capital). What interest do I need to include in the self assessment?

    Do I:

    a) put the interest paid for the whole year as stated in the certificate
    b) put the whole interest as a) minus the interest paid for the month of April
    c) something else?

    I have no other statements apart from a annual mortgage statement for calender year 2019 which lists all the payments made for the year but no breakdown between interest and capital repayment.

    Thanks

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  • leasee123
    replied
    Originally posted by leasee123 View Post
    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.
    jpkeates - just wanted to clarify the above?

    thanks

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  • JamesHopeful
    replied
    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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  • leasee123
    replied
    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.

    Leave a comment:


  • jpkeates
    replied
    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).

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  • leasee123
    replied
    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?

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  • jpkeates
    replied
    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.

    Leave a comment:


  • JamesHopeful
    replied
    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).

    Leave a comment:


  • jpkeates
    replied
    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.

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  • doobrey
    replied
    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.

    Leave a comment:


  • Gordon999
    replied
    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.

    Leave a comment:

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