Apportioning mortgage interest

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    Apportioning mortgage interest

    I've only found one other thread that touches on this topic (unless I'm looking in the wrong place). I just want to be sure I'm calculating / apportioning mortgage interest correctly.

    My mortgage statement runs from November to October, and interest is applied annually on 31 January.

    To be sure, I should divide annual interest applied by 365.

    1 November to 5 April = 156 days.
    6 April to 31 October = 209 days.

    So lets say interest applied is:
    £3000 / 365 = £8.22/day.

    For the first tax year (156 x 8.22) = £1,282.32.
    Second tax year (209 x 8.22) = 1,717.98.

    Can anyone confirm.

    I'm doubting myself as I've read that deductions should be included within the tax year in which they were paid (or in this case applied).

    Thanks.

    #2
    Probably easier to request a Certificate of Interest Paid from the lender for the year/period ended 5 April 2013?

    Comment


      #3
      You only need to apportion for first tax return (1st Nov -5th Apr).

      For following year tax return (6 Apr-5 Apr 2014), you should enter the interest paid for one whole year.

      Comment


        #4
        That won't work, as the basis period for a UK Property Rental Business is the Tax Year.

        So, although one is not restricted to a 5 April year end, time apportionment is always required if any other year end is chosen.

        Comment


          #5
          Thanks.

          Gordon - but as my interest is applied as one transaction on 31 Jan, for each financial year I will essentially have two entries.... yes ?

          Comment


            #6
            If you're using the cash method for accounting I think you can just have one entry on the 31st January for all the interests paid.
            Apportionment would only be potentially needed the year the rental business started.

            Comment


              #7
              Simpler accounting (aka Cash basis) is due to commence from 6 April 2013. By concession, HMRC have allowed small cases to use Cash basis rather than the Accruals basis. However, I suspect that these cases have been accepted due to HMRC not checking that the statutory basis had not been used, rather than a formal agreement.

              Assuming that property rental businesses are not excluded, no apportionment is required for lenders who apply the interest payment annually as a single sum. However, under the new Cash basis, the deduction for interest is limited to £500. We'll have to wait and see what the actual Finance Act says.

              Comment


                #8
                It was the case before 6 April 2013 that cash basis could be used for rental businesses as long as gross receipts did not exceed £15k pa. as per HMRC:
                http://www.hmrc.gov.uk/manuals/pimmanual/pim1101.htm

                I was not aware of that 'new Cash Basis'!

                Comment


                  #9
                  The new one is meant to be "simpler."

                  Comment


                    #10
                    Originally posted by ALDB View Post
                    Thanks.

                    Gordon - but as my interest is applied as one transaction on 31 Jan, for each financial year I will essentially have two entries.... yes ?
                    I read your letting situation as commencing on 1st Nov 2012, so in your tax return for 2012-2013, you would apportion the annual interest charged on 31 Jan 2013 and enter the loan interest calculated for 156 days.

                    For the second tax return ( 2013-2014), I would just enter the annual loan interest charged on 31st Jan 2013 - because the next date for interest charged will be 31st Jan 2014 and too late for entering on the tax return which have to be submitted by 31 Oct 2013 ( paper return) or 31 Jan 2014 .

                    Its better if your mortgage lender supplies a certificate of tax paid.

                    Comment

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