2020 Tax Laws on B2L (Capital + Interest)

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    2020 Tax Laws on B2L (Capital + Interest)

    Hi all,

    I decided to join here as I'm trying to work out if renting my flat is a sensible option (while taking a 2nd mortgage for a new purchase) or not but would rather know all the facts before jumping in.

    So with that said the 2020 tax laws have me querying something, all references that I've seen so far are for interest-only mortgages, nothing mentioned the interest in a capital + interest mortgage.

    As I understand it (being in the 40% tax bracket) -

    Pre 2020 - £20000k rent PA, £13000 interest only mortgage would be a tax bill of £2800 and Profit of £4200
    Post 2020 - £20000k rent PA, £13000 interest only mortgage would be a tax bill of £5400 and Profit of £1600

    So in a capital + interest mortgage do I get the 20% credit on the interest part of the capital and interest mortgage meaning that -

    Post 2020 - £20000k rent PA, £13000 capital & interest mortgage (say £7000 capital and £5900 interest) - i.e. can I apply the above Post 2020 to the £5900?

    Question two is that if a property is split ownership 50/50 (40% and a 20% tax bracket) in the Pre and Post 2020 can I just split the numbers 50:50 and apply the respective tax bracket?

    Thanks,
    BigPete

    PS - Apologies if I've said something stupid, please feel free to chastise

    #2
    Originally posted by BigPete View Post
    all references that I've seen so far are for interest-only mortgages.................PS - Apologies if I've said something stupid, please feel free to chastise
    No chastising needed but...................the reference to IO mortgages is because the changes only effect the interest part of a BTL mortgage. There are no changes to the repayment element of it as it isn't a tax deductible expense.
    "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

    What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

    Comment


      #3
      Ah right so I'm stuck paying 40% of £13000 in interest minus normal deductibles (repair/maintenance etc) if I go repayment rather than IO, or at best 40% of £6500 and 20% of £6500?

      Comment


        #4
        I didn't read your figures in the OP or calculate if they were right or not. So can't comment on your subsequent post.

        My understanding is that the interest element of a BTL mortgage was a tax deductible at your prevailing rate of tax. This is now being capped to 20%, so 20% 'extra' tax.
        "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

        What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

        Comment


          #5
          The OP is, I think correct.

          The way that the tax "restriction" is currently planned to work (although not yet set in stone) means that income tax is calculated on income less operating expenses at whatever rate is appropriate - it's essentially added to your other income - , end then reduced by 20% of the amount paid in interest (either in an interest only loan or the interest proportion of a repayment mortgage).

          That mechanism applies if the income and repayments are split, although you want to be careful that the income doesn't knock the lower rate tax payer up a band.
          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


            #6
            Thanks for the replies folks, was on the phone with HMRC and they have confirmed that relief is applicable to the interest portion of a repayment mortgage and that I should contact the lender to get this exact break down.

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