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Hi All... long message alert!! I have been debating whether to post this for a while in fear I am being stupid but here goes!! I have read lots & lots with regards to S24 but have always been a little nonchalant as my understanding is that I am not really in a position to be impacted by it ... so here goes. This is my current situation and why I do not see an impact. My question is ... is this too simplistic and am I missing something?
1. On top of my main residence I only currently have x 1 BTL property which was a cash purchase and rents annually for £6,900.
2. I have remortgaged this BTL property and now have cash in the bank for a 2nd purchase (looking). This remortgage is INTEREST only and is costing me £150 per month / £1,800k annually.
3. I currently have NO other income ... other than point 1 currently.
4. When I purchased my first BTL I was completely unaware of the fact I could actually claim tax relief on my mortgage interest payments (!) ... so I had always calculated i would be paying standard tax rates on my full rental income 20%/40%/45% etc on my full rental income (currently only £6,900) and so on as I add more houses.
5. Now I understand I can deduct the full mortgage interest paid (the £1,800) from my rental income before submitting a tax calculation which would mean the interest payment is untaxed.. and I pay LESS tax than I first assumed? .... now with the event of S24 I understand I will still be able to claim tax relief on the full interest payment if I am a BASIC rate taxpayer but only 75% / 50% / 25% tax relief on the interest payment if I am a higher rate tax payer over the next few years t0 2020?
6. Meaning that actually I am in CREDIT versus my original understanding as I had always calculated I would be paying 20%/40% tax etc... on my full income being unaware of interest relief.
So for me in my simple little situation with limited income and limited BTLs it seems that S24 has limited impacted... and due to my naivety/lack of understanding at the start of my investment journey I will actually be better off than expected... as I will obviously now be claiming tax relief on my interest payment.
I plan to add more properties as time moves on but will hopefully be sticking to a max overall LTV of 60%-70% and will now build in the fact I can SAVE money from S24 over the next few years (through the reducing tax relief allowance) and that I will then be back to paying standard tax rates on my full rental income by 2020?
So am I missing something?
Your personal allowance more than covers the rent you're currently receiving - you shouldn't be paying anything!
Thanks Dom... yes understood. I guess my question was ... when I start paying tax after 11.5k / adding more properties... it still seems I will ultimately be 'better off' than expected as I didn't realise I could claim tax relief on interest payments.... sorry for being slow. I think I am clear just wanting to check I am not missing something.
You WILL be subject to S24 if your rent and mortgage interest exceeds your personal allowance.
Any mortgage interest income that exceeds the tax free allowance IS subject to S24 taxation
If you don't earn anything else then you won't pay any tax..The key is to always remember to add any mortgage interest income to any other income.
So let us say that you remain below the HRT limit.
Let us say £20000 of that is rent and £20000 mortgage interest income.
You will have the tax free allowance and be taxed on the remaining amount
When all relief is removed you will taxed on the gross amount and then given a 20% tax credit.
So if you want to remain a BRT don't allow your mortgage interest and rent combined to reach the HRT limit less the tax free allowance.
Mortgage interest income has the ability to move you to being a HRT and that can cause a whole load of other problems.
But for you this remains less of an issue as you have presumed there has been no tax relief
You have therefore adjusted your business model to take account of this.
So S24 is already part of your business plan.
Quite remarkable that you are viable on this basis. .Few LL are in such a position.
I'm somewhat confused:
As far as I know, you don't add your mortgage interest to your income, you just declare your income without deducting your mortgage interest first
The only way to do this exercise correctly is to run your figs in the RLA calculator
such a lot of variables
Learn Change and Adapt ?????
I agree its completely wrong.Paul must be unwell
Nope you add up all interest income; rent, finance charges etc
Then subtract a 20% tax credit and then you will be faxed on what remains
Believe me mortgage interest is income as far as S24 is concerned
Play around with the calculators and you'll find that your tax bill increases the more mortgage interest you have.
Well at least it does when ever I add mortgage interest costs to my finance costs.
It would be great if my tax bill reduced the more mortgage interest I am charged but it never does!!
The calculators don't lie!
There is no such thing as mortgage interest income.
Unless you are a lender
Not actually but effectively it is.
It is the effects of such that is important not what it is called.
I consider being taxed on fictitious income as a result of withdrawing tax relief on finance costs as income.
It is only mortgage interest and other finance costs that generates a S2r liability ergo it is income!