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  • Tax

    S24: Interest-only mortgages less attractive?

    Your figures are wrong somewhere.

    Your example LL has a yearly rental income of 43.200 - under the HRT threshold. So he pays extra tax equal to 20% of the interest and gets a rebate of 20% of the interest. His take home does not change under S24.

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    I used a self employment tax calculator rather than working it out myself - put the rent in as gross income, 20% of the interest as an allowable expense, then deducted the remaining interest from the post-tax figure.

    That's basically how the allowance works isn't It?

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    Well your answer was wrong, so something in the calculation must be wrong. If the rental income is less than the HRT threshold then the extra tax is at the basic rate and is cancelled out by the rebate. So LLs like myself would pay no extra tax (unless something else changes).

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    I'm not saying the numbers are right, but your statement that for turnovers under HRT threshold S24 is cancelled out isn't my understanding.

    20% relief = 20% interest value can be deducted from overall tax liability.

    So pre-S24, a £35k income after allowable deductions with £10k interest costs = £25k taxable.

    -£11.5k personal allowance = 20% tax to pay on £13.5k

    =£2700 tax bill

    Post S24, the £35k is taxable less 20% relief on £10k interest = £33k taxable.

    -£11.5k = 20% to pay on £21.5k

    =£4300 tax bill

    Therefore there's no direct cancelling out, you will pay more - it just gets a lot worse when you start using bigger numbers that hit HRT.

    Somebody please correct me if I have misunderstood the relief calculation.

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    Pre s24  25k income (after interest deduction)  Tax = 20% of 13.5k = 2700

    With full s24 35k income Tax 20% of 23.5k = 4700 Refief 20% of 10k interest = 2000 Net tax 2700

    It does cancel out.

    Your mistake was to deduct the relief from the income rather than from the tax.

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    Rob use the RLA calculator on S24  if you are investing in BTL in your own name you are not self employed ??

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    Learn Change and Adapt ?????

    I will re-calculate at the weekend - maybe manually to double check!

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    As I've said before it doesn't matter what the nuts and bolts of S24 are.

    The facts are if everything remains the same apart from S24 then my tax doubles, that is all I need to know that S24 is a bonkers tax!

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