Help with Self Assessment Mortgage Interest entry

[Nev M]

Dear all,

I have a couple of questions I am hoping someone can help with.

My wife is a 20% tax payer and on our Residential let property she is 99% and I am 1% Ownership for tax purposes via DOT and we are filling out the online Tax Return.

1.       There is a field that asks “Any income from a property let Jointly” My wife answered no here as even though technically it is jointly with me but I am only 1% and do not receive any income from it all goes to my wife. Will this get her in trouble? Should I change this too jointly?  
 

2.       This part is confusing around what to enter into the “Allowable loan interest and other financial costs” field under the page “Expenses for other property income”

My understanding is that this is a sliding scale to reduce the amount of tax that can be claimed eventually to 20% and for last tax year is set at 25%.

We calculated 25% of the mortgage interest figures ourselves and entered it. I am making the assumption here that I am claiming a net cost of 25% sum to be removed from consideration as Taxable. E.g. Interest at £1000 and we entered £250?

Should we not be able to then claim basic rate of 20% against the remaining 75% (£750)? Ref attached chart.

Think I am missing something here and apologies this was confusing to explain I hope it makes sense to someone what i am trying to say.
 

Regards

Nev

[Nev M]

adding the wording on the tax return under residential letting

[Richlist]

1. If you have formally completed the form/declaration to have the beneficial interest split 99:1 then that is exactly what needs to go on your SA. In your case 1% of the gross profit & 1% of the expenses......your wife will show 99% & 99% respectively.

So, looks like you need to make a change to the form before you submit it. I would make sure you both add a note in the relevent box to inform HMRC that that is the split with your partner.....and name your partner.

2. For 2019/20 you can only offset 25% of your total mortgage interest payments. No you cannot claim any other mortgage interest relief.

The calculation is quite complex......I believe HMRC complete the calculation for you but it's easy to check before you submit the return using the examples they have given and substituting your own figures.

You'll note that with the example given by HMRC it shows a 43% reduction in profits for 2019/20 and a 58% reduction in profits for 2020/21 compared to pre April 2017......Ouch!!!!!

[Richlist]

Just to help with calculation for 2019/20 and using the figures provided by the HMRC chart:-

Income £11400pa, mortgage £7200 pa, 

£11400 minus £1800 (25% of £7200) x 40% = £3840

£7200 x 75% = £5400 x 20% = £1080

£3840 minus £1080 = £2760 tax due.

Hope that helps a bit.

 

[Nev M]

Thanks Richlist, 

Some good food for thought, I will try to find the calculations on their website example and review it.

This is the return for my wife we are doing at the moment, seems like a pain to split 1% on the profit and expenses removed to me as in reality i am not taking any of the profits or expenses at this time all runs through wife's account and will not do so till i am older and drop from 40% tax band and then will revert the Deed of Trust to 50/50 again. But i guess the taxman as you say will want to see it this way regardless.

The figures you gave above do make sense to me and are very helpful.

The confusion i had there was that there is only one box to enter your Mortgage interest in  “Expenses for other property income” and says you must enter it as 25% of the total interest. There is no box to enter the calculation for the 20% as per your example "£7200 x 75% = £5400 x 20% = £1080", I can only assume that they have a formula  based on the 25% sum i placed working out the 20% and placing into the total owed automatically.

Thanks again, i will try sums and see if they match the HRMC figure as you suggest.

[Richlist]

Two comments.

* It doesn't matter how you & your wife decide to share out the profits between you BUT you have told HMRC that the beneficial interest in your property rental is split 99:1. So, that is how you must account for it.

* All HMRC need in order to calculate that element of your taxable profit from property rentals is your gross rental income and your mortgage payments. They will know the calculation required for 2019/20. All I'm suggesting you do is a sanity check on the figures before your final submission to HMRC to ensure they are where you expect them to be.

The alternative is to hand it to an accountant who will do it for a couple of hundred quid.......although you have left it very late a and have less than a month to submit your tax return. Consequently you would probably need to pay the accountant more.

[Nev M]

Thanks Richlist, advise appreciated & noted.

[Nev M]

Hi Richlist & Members,

I am summitting this return on behalf of my wife. For next return will definitely seek help of accountant but short on time now leaving it so late.

I have followed your advise Richlist and entering 2 properties as the latest one is jointly owned and mentioning Form 17 / Deed of Trust.

I can find the box to enter the Finance cost for Mortgage fee and Interest and adjusted it down to 25% of the allowable expense though this only allows to entry of the at 25% figure. There is no box to place the other 75% of Mortgage interest and fees at Basic 20% expense. I will call the tax office and see if they can offer any advise.

Below is what i was going to write in the "Any other information box" on the Tax Self Assessment return and where it is in red I need to speak to the Tax office i think as unsure if i should write this at all. To much rope and all that. Can you have a read through and give your thoughts on if it is to much i am telling them or not enough.

Appreciate any advise or thoughts. I have friends that rent saying don't mention anything but as you suggested Richlist i want this to be all above board as possible. Thanks Nev

------------------------------------------------------------------------------------------------------------------------------------------------------------------------ :

"Dear HMRC,

Please note I have bought a second property in Sept 2019 jointly with my Husband and we have an agreed Form 17 Deed of Trust as myself at 99% and my Husband at 1%. The original house that I have been renting and previously & declaring is still fully 100% in my name alone.

I have adjusted the Page “Expenses for other property income” in field “Allowable loan interest and other financial costs: (optional)” to reflect the expenses as 100% interest for the property solely in my name and 99% for the new jointly owned property for mortgage interest. I have also reflected the expenses in the same way through the Form.

This field also includes 25% of the Mortgage Purchase/Arrangement fee (£995 /4) charged by the Mortgage provider for the new property.

There is some confusion our side as to where we enter the 20% Basic tax for the other 75% of the Mortgage interest and so have entered it in the same location to show the total Expenses."

[Richlist]

* Presumably you are also submitting a tax return for yourself 

* Once you have calculated 25% of the annual mortgage interest payments (and all the other expenses) you will then apply the 99:1 split before entering figures in the tax returns for you and your wife. 

* This is the first time you have mentioned 2 rental properties....... that's confusing & adds more complexity.

* I'm surprised you can fit all that explanation into the box on the tax return.....space is limited. Keep it as short as possible but do refer to the wife & husband by their full name.

* You will need to add a corresponding comment on your own tax return.

* Your tax return is not straightforward and I'd normally suggest that you seek professional advice. This example shows why you shouldn't leave your tax return to the last few days especially if you don't know what you are doing. You now run the risk of submitting your return with incorrect entries, incurring incorrect tax liabilities or a fine from HMRC. You cannot complete a tax return by remote control thru an internet forum.

 

 

[Nev M]

Thanks again Richlist.

[llarisaabramova]

For me its is kinda stupid to calculate every 1% in your case, even you got 0 profit. Obvious that you will have 0 profit from the property. Sometimes i wonder about the stupidity of some local laws. It seems some of the laws are done only to confuse normal people. That's why if I have some problems with my loans, mortgages, or taxes forms, I approach the professional Mortgage Advisor Bristol services to be sure that all agreements with the bank/local authorities will be done in the proper way.

[Nev M]

That's the way we approached it in the end. My profits verses expenses was almost zero income so we just submitted my wife's 99% in the end.

[Richlist]

But it's not up to you to make that choice. You have agreed to joint ownership, you have elected to share profit on a 99:1 basis so you MUST account for profit & loss in that way.

Let's look at an example.......If you make say, £3000 profit from letting then your 1% is only £30. If you are a 40% tax payer thats £12 HMRC won't recieve from you. Why should they let you off paying it ? Why should they not apply penalties ? The rest of us are expected to pay our taxes......so should you.

[Nev M]

 

Perhaps i should explain myself better.

I have been in and out work for nearly 2 year now on health reasons and my earnings worked out below the minimum Tax threshold and receive no benefits due to my savings and assets. Advise I was given was that if you are in the 0% Tax threshold after income from all sources then there was no need to submit a Tax Return. The 1% yearly profit equalled around £50 at 0% tax and still below the starting Tax threshold.

When I am back to work (very soon I hope) I fully expect to be back into the 20% tax bracket and definitely will again be filling returns and paying tax that would be due. I am to paranoid to avoid Tax man.

Ref your point llarisaabramova, I do agree with you that the effort seems high for my situation (when back to work) as the maximum possible for me to owe the tax man with no repairs, tenant swaps or vacancies at 1% would be £80@20%=£16. But them are the laws of the land and i am fine with that but hate the time taken to file the return. I am sure it costs me and the tax man much more than that in time alone  

Doing my Wives at 99% is a much more costly matter however and happy to spend the time and accountancy costs on that side as the resulting billing is a much bigger impact.

[Richlist]

If you receive income from property.....even 1%......you HAVE TO fill in a self assessment tax return. I can't make it any clearer than that. It not your choice, it's mandatory.

My advice to you is to see an accountant for your future tax returns.

 

[VickiCoylesjod]

Even considering that you own only one percent of the share of the property, you must fill out a tax return as joint owners, despite the very small rental income. The system is designed in such a way that it is more interested not in numbers but in the information you provide.  I recently bought an apartment for a mortgage, and I faced many paper problems. The most unexpected thing for me did not have the most pleasant neighbors. Friends advised me to sign up for a good lawyer who helps in housing matters https://swpdxlaw.com/services/condominium-hoa-law. Therefore, be careful when filling out the declaration.

[rosindamove]

I also had big problems with the self-assessment mortgage loan registration process. Honestly, I don't know how I did it until the end. The mortgage advisers who offered me the mortgage helped me a lot. I recommend that you also ask for their help. I wouldn't say I like the home buying process and everything it entails. It was the first time, but I hope it won't happen again. The process of obtaining a mortgage is very long, and then I took care of the equity release with the help of Equity Release Cambridge, which is also a long process. I wouldn't say I liked it.