Will I be a higher tax payer under the new tax rules?

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    Will I be a higher tax payer under the new tax rules?

    I am not fully understanding how the new tax rules will effect me when the are fully implemented.

    My rental income is £20k. This is after removing all expenses including interest payment. I pay £25k in interest on my 2x property's mortgage.

    Under the new tax rules. .......

    1. Will my income be £20K so I pay the same tax as before. So I get mortgage tax relief on the interest.

    OR

    2. Is my income now £20k + £25k = £45K which makes me a higher tax payer. I therefore pay the 40% tax and also don't get any tax relief on my interest. I therefore pay 40% tax on the full £45K.

    Thanks

    #2
    I don't know about anyone else, but it really looks like you've chucked a lot of words together and almost ended up with sentences and questions... but it's not making much sense to me. Have another go at framing this...

    Comment


      #3
      The new rules, which don't come in till next year incidentally will mean that your income will be assessed as £45k, so you will pay a little tax at 40% but you will be able to add back 20% of the mortgage interest before calculating the final tax figure

      Comment


        #4
        Neither of those options is correct.
        Your income will be £45k, but you will also be able to claim 20% of the interest cost against the tax you would pay.
        You only pay tax at the higher rate on the income over the higher rate threshold, which is currently about £42,600 for most people.

        This is being phased in over the next three years (the allowance is currently higher than 20% and moves down to that figure in increments).
        At the same time, it is possible that the higher rate threshold will increase - the chancellor has said it will increase to £50k in the life of this parliament.
        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


          #5
          jpkeates,

          Thanks for that. I can now see the extra I will be paying will not be that much more.

          Comment

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