{"id":2142,"date":"2021-02-01T16:43:12","date_gmt":"2021-02-01T16:43:12","guid":{"rendered":"https:\/\/cloud9accountingteam.co.uk\/?p=2142"},"modified":"2021-02-01T16:43:12","modified_gmt":"2021-02-01T16:43:12","slug":"unused-residential-finance-costs","status":"publish","type":"post","link":"https:\/\/cloud9accountingteam.co.uk\/sk\/unused-residential-finance-costs\/","title":{"rendered":"Unused Residential Finance Costs"},"content":{"rendered":"

Since 2017\/18, the amount of income tax relief that landlords with residential properties have been able to claim on residential property\u00a0finance\u00a0costs\u00a0(e.g. mortgage interest) has gradually been restricted such that for the year 2020\/21 the restriction is now given as a tax reducer at the basic rate of tax (i.e. 20%). Loans that are wholly for commercial properties, land and property dealing or development businesses or properties used for a furnished holiday letting business are not affected.<\/p>\n

 <\/p>\n

Landlords affected by this restriction may have noticed a box on the 2020 tax return as being\u00a0Box 45 – Unused residential finance costs brought forward.<\/p>\n

 <\/p>\n

Completion of this box records the amount of interest that has not been utilised in one year to be carried forward and to the finance costs figure of the following year. The tax reduction for that following year is then calculated using both the amount brought forward and the current year’s finance costs. The tax reduction applies to each property business separately such that any \u2018excess\u2019 tax reduction on an overseas property business cannot be used against a UK property business or share of partnership property business or vice versa. If the property has made a loss then no tax deduction will be given either and the unused finance cost amount for that year will be carried forward and utilised in the following year’s calculations. The tax reduction cannot be used to create a tax refund.<\/p>\n

 <\/p>\n

Calculating the amount of restriction to be applied can be complicated in some circumstances. The amount to claim is the lower of the finance costs incurred, the profits of the property business (less losses brought forward) and the taxpayer\u2019s total taxable income (after deduction of the personal allowance but ignoring savings and dividend income). This restriction may result in an amount being disallowed, therefore the amount not used is carried forward to be utilised in any following year and recorded in box 45.<\/p>\n

\u00a0<\/strong><\/p>\n

Basic Example:<\/p>\n

Tax year 2019 – 2020<\/strong>
\nEmployment before tax = \u00a340,000<\/p>\n

Rental income = \u00a0\u00a0\u00a321,000
\nOther expenses = \u00a3(8,000)<\/u><\/p>\n

Property profits = \u00a313,000<\/u><\/p>\n

Finance costs = \u00a314,000 (\u00a33,500 allowable against rental income – 25%)<\/p>\n

Taxable income = \u00a349,500 (\u00a340,000 + \u00a313,000 – \u00a33,500)<\/p>\n

Income Tax calculation:
\n\u00a349,500 less personal allowance (\u00a312,500) = \u00a337,000<\/p>\n

Tax due: (\u00a337,000 x 20%)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a37,400<\/p>\n

Finance cost tax reduction calculated
\non property profits (\u00a39,500 x 20%)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a3\u00a0 (900)<\/u><\/p>\n

Final Income Tax = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a35,500<\/u><\/p>\n

The tax reduction is calculated as 20% of the lower of:<\/p>\n