Can you claim Mortgage interest? Yes!!! How? Section 24 - Example Calculation

The Tax rules on Section 24 or the Interest Rate Relief are now fully implemented. You can still claim the tax credit but you may be seeing higher tax bills on some of your rental income. How does it actually work? What happens if you cannot use all the finance costs you have incurred?
In this video you will discover:
Detailed Tax Calculation showing how you calculate your finance cost reduction under Section 24, the interest rate relief.
2 years' calculations show how unused relief is carried forward.
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DISCLAIMER: Please be advised that the content of my media is my personal opinion and is intended FOR GENERAL INFORMATION PURPOSES ONLY, not specific tax advice. Nothing herein shall be construed to be financial, legal or tax advice. The content of this video is solely the opinions of the speaker. Making decisions on your tax position and investment decision is your own and appropriate specific targeted advice from a qualified accountant or tax advisor should be sort. The speaker will not be held responsible for any losses or gains based on decisions made following watching this video. Always do your own research and seek advice from an appropriately qualified professional.
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[@nikkion2140]

This is very well presented. Thanks a million.

[@kimberleyshapcottpropertytax]

Glad you enjoyed it!

[@windymill64]

Loving these videos Kimberley

[@kimberleyshapcottpropertytax]

Thank you.

[@chrismantinman6880]

excellent tutorial. I am moving away form my accountant due to costs and this has been invaluable. Many thanks

[@kimberleyshapcottpropertytax]

Glad it was helpful!

[@francestaylor3355]

Absolutely excellent!

[@kimberleyshapcottpropertytax]

Glad you enjoyed it

[@nickyburton3559]

Thanks! Really useful and clear!

[@kimberleyshapcottpropertytax]

You're welcome!

[@leadwithfk]

Excellent video, thank you 🙏

[@kimberleyshapcottpropertytax]

your welcome.

[@kennymac6376]

Fantastic video!!! I have 6 BTL properties and I normally get my accountant to do my tax return. I wasn't quite sure about mortgage interest. Now I see its a 20% deduction from the total. This year I will try to submit myself as my accountant fees have double.

[@kimberleyshapcottpropertytax]

Thanks for sharing!

[@asharyal8605]

Isn't accountant fees also fully tax deductible??

[@kimberleyshapcottpropertytax]

They are an allowable expense in most situations.

[@kashansamad197]

Very nicely explained.

[@kimberleyshapcottpropertytax]

Thanks for liking

[@jonathanlewin5827]

You just saved me £1500!!!! Thank you and thank you KZbin algorithm!

[@kimberleyshapcottpropertytax]

Glad I could help!

[@mustafahaider4329]

Great video

[@kimberleyshapcottpropertytax]

Thanks!

[@nikkion2140]

It would be brilliant if you have a follow up video for a direct comparision where the properties are in Ltd. Just a suggestion!

[@kimberleyshapcottpropertytax]

Great suggestion!

[@hasumistry8674]

Hi Kimberley. Very informative video. I have 2 questions: 1) I also was not aware, until yesterday, that you claim tax relief on your mortgage interest. you previously mentioned "You would need to send in amended tax returns for the periods that you had not included it to claim the tax relief which would then be carried forward each year. You can go back up to 4 years to amend your tax returns." When was this tax relief (which tax year) introduced & what is the process of sending in an amended tax return? 2) Where & how on the tax return can you claim the £6 per week for energy expenses for working from home? Thank you

[@kimberleyshapcottpropertytax]

Thanks for watching the video and that you found it helpful. You will need to write to HMRC to tell them that there is an overpayment of tax on those years. The pages impacted on the tax returns need to be updated and sent with the letter to show the amendments that need to be made. The working from home can be included in the other expenses boxes with your other rental expenses that have been included. There are a number of boxes so just include in the appropriate location.

[@malcolmloveday5679]

Excellent tutorial. Thank you. When filling in my online self assessment tax return, does the system automatically take these factors into account, or do I need to do some of the calculation myself?

[@kimberleyshapcottpropertytax]

I believe it does most for you however you just need to ensure you enter it in the right places.

[@user-ip4ee2tn1t]

Hi Kimberley, love the video! I did my own tax calculation by following it step by step. Thank you! :) I'm a buy-to-let landlord and I re-mortgaged my residential property in the financial year 22/23. The one thing I'm unsure about is around the 'Product fee on the re-mortgage' and the 'Costs paid to a solicitor for working on the re-mortage'. Can these two items be fully expensed against my income for self assessment? Or alternatively must they be added to the mortgage interest total to make up the finance costs for a 20% tax credit? If I don't get these two items in the right bucket my entire tax calculation will be wrong! I'd be so grateful for any of your thoughts - thank you.

[@kimberleyshapcottpropertytax]

The product fee and legal fees for the remortgage are classified as finance costs therefore would be included with the mortgage interest finance costs to then be included within the 20% tax credit.

[@Andy-si1pl]

This is brilliant. Do you have a version of this that included dividends earned from a ltd company?

[@kimberleyshapcottpropertytax]

Not at the moment. However I'll put it onto my recording schedule to do one that incorporates other income such as dividend income from a limited company.

[@ChildofGod255]

Thanks for your video it was very clear. If my income for the tax year was within the basic tax rate threshold do I use the lower tax rate to calculate ? I am due to submit my SA this January do I use my income for 22/23 tax year as it Jumped significantly in May 23

[@kimberleyshapcottpropertytax]

If I understand your query correctly you will use the lower tax rate if the income was at that rate for the period 6 April 2022 to 5 April 2023. The May 23 income is irrelevant for the tax return you are completing.

[@Dorothy-gw6km]

Hi Kimberly, thanks for this video, it is very helpful: my question is, regarding the finance cost, is it calculated automatically by HMRC software i.e taking the lower of this and that, or do I work it out myself and just put the figure in, please help.

[@kimberleyshapcottpropertytax]

It would normally do this for you assuming it is entered in the relevant boxes. The Mortgage interest should be in box 44.

[@Dorothy-gw6km]

Hi Kimberly, thanks for this advice: I have been renting a property for 4 years and been filling in a Tax return however I need to sell this year. How do I avoid paying tax or CGT, please advise. Thank you.

[@kimberleyshapcottpropertytax]

There may be reliefs available to you depending on if you have lived in the property and whether you have done any work on the property not claimed as repairs due it being of a capital nature. Check out the videos on Capital Gains Tax to explain how it works.

[@thatsallfowkes]

Thanks Kim, very useful. If you can give some feedback to our situation I’d be very grateful. My wife and i are going to travel full time in November. We have just rented our house out on a repayment mortgage that expires next April, should we go to buy to let on next term? We were not aware of the whole tax situation, thinking now maybe we should have sold up and invested a chunk of equity into stocks? If it’s going to cost us more than it was before. I guess after November when we have no incomes travelling the tax should be zero. But then there is CGT when we sell. Between now and Nov I’m a 20% tax payer and my wife is 40%. So the first 5 months will cost us. Any advice 😊

[@kimberleyshapcottpropertytax]

You will need to speak to a mortgage broker to see what options you have with the mortgage. You will need to complete a tax return for the period that you rent out the property which will be for 2024/25 tax period. Depending what other income you have you may limit the tax payable if it falls within the tax free allowance. You will have some Capital Gains tax on disposal, however if is for a short period this should be insignificant for the gain and you capital gains personal allowance of £3,000 may cover it,

[@seancrowe3353]

Where on your tax return form would you look to see if your accountant has been deducting these allowable finance costs? I can see on my return 'residential finance costs' but no where on it that it's being used to calculate a reduction. Thanks

[@kimberleyshapcottpropertytax]

If you are using an accountant you should be able to ask for the tax calculation and it should appear on the calculation after the tax has been calculated as a deduction if there is taxes payable and allowances to use.

[@kellywalker4494]

Another example of government taking a simple thing and making it far more complicated than it needed to be.

[@kimberleyshapcottpropertytax]

Most definitely.

[@SenthilkumarVadivelmurugan]

Great video. It is possible to provide similar calculations for a beginners like me to step-in with an assumption of 600 PCM from a property please? I am working too, do I need to add the limited company income + divident to my regular primary salary and file self assessment too? If so, I may move to bit higher tax band right?

[@kimberleyshapcottpropertytax]

Great suggestion! I'll get something on the channel soon.

[@SenthilkumarVadivelmurugan]

@@kimberleyshapcottpropertytax that will help like new bees like me to jump-in. It's been 2 years after my training without any transactions. Lol. Probably some thoughts on minimum profit considerations in this mountain high interest rates.

[@andrewmcguigan1073]

Hi Kimberley, when you say Salary is this the salary you would earn under PAYE the Gross amount or Net?

[@kimberleyshapcottpropertytax]

For tax calculations it will be the gross salary.

[@altafsamnani6552]

Hi Kimberly, thank you for your video and it is very informative. I have a mortgage but I do not have any rental income because this is my first home. In that case, how can I claim tax relief? Can you please help?

[@kimberleyshapcottpropertytax]

If it is your personal residence, then there is no tax relief available.

[@johnporcella2375]

​@@kimberleyshapcottpropertytaxThough, as the Principal Private Residence, there will not be an Capital Gains Tax on any profits on sale.

[@mustafahaider4329]

Mortgage relief is available against rental income . If there is no rental income , there will be no relief

[@kimberleyshapcottpropertytax]

Any relief would be carried forward to be used in a year where there is income to set it against.

[@seancrowe3353]

How is this possible with section 24? My tax returns have no deductions, only non finance costs

[@kimberleyshapcottpropertytax]

There is a separate box that needs completing for the finance deductions which then applies the tax credit at 20% generally.

[@mikeroyce8926]

If the mortgage interest tripled, would the tax payable increase? PS Thank you so much for this video.

[@kimberleyshapcottpropertytax]

The tax payable should go down as the interest rate relief tax credit will increase so reduce the tax that needs to be paid.

[@thomasmorris262]

Hi Kimberley, Can you use the £1000 property allowance before doing the income tax calculations? E.g. my rental income is £10,000 my allowable expenses are £2000, can I then subtract the £1000 property allowance before calculating income tax on this figure? Thank you.

[@kimberleyshapcottpropertytax]

If your expenses are £2,000 then you are better claiming then expenses rather than the allowance. When you use the allowance you ignore your expenses. Therefore you would pay more tax with the allowance.

[@cammyli8954]

Thank you for your video, may I clarify about the adjusted total income should be the amount exceeding personal allowance or the total income, for the example of 2023/2024, should adjusted total income be 54000-12750 or 54000? Thank you!

[@kimberleyshapcottpropertytax]

It is the total income not adjusted for the personal allowance.

[@cammyli8954]

Thank you so much for your kind reply!

[@nikkion2140]

I gather the cost finance is the figure being shown on certificate of interest issued by the lender? Yes/No

[@kimberleyshapcottpropertytax]

Yes. Interest payments not capital repayments.

[@nikkion2140]

Maybe, you can tell us, when do you decide to carry over the cost of finance and when not?

[@kimberleyshapcottpropertytax]

It is automatic.

[@ashwincbhindi7542]

Can you do a similar calculation without any salary ? My net property income is £57000 and no other income

[@kimberleyshapcottpropertytax]

I will look at doing something with sole property income when I am recording next and get it onto the channel in the next few months.

[@VLN-ho1pp]

I thought the tax reduction of 20% only apply to the financial cost. Why and how on your video, you said we will only be able to apply to the lowest of the three ? ( as its can be different each single year)

[@kimberleyshapcottpropertytax]

It may be different each year. The general approach is 20% of financial cost, however as with all of these things there are a few complications which are explained in the video. For example if you have no tax to pay then the financial costs allowed will be carried forward to use in a future period.

[@dannyduet1989]

I’m confused by this too. Why did you not use the 20% interest relief on the £15k mortgage interest in the first example? And isn’t the £13k property profits what you get taxed on and not get relief from?

[@pataleno]

Great video. What I don’t understand is why do people say pay off the mortgage to effectively remove section 24 ? You cannot then claim any finance costs .. Am I missing something ?

[@kimberleyshapcottpropertytax]

No, you are not. Some people like to pay off mortgages as they receive full income and don't want the mortgage plus are not impacted by changes in the interest rates. Others like to keep mortgages on them to maximise the return of their funds, however, they are impacted by a changing market. Every situation is different and different strategies work for different people.

[@pataleno]

@@kimberleyshapcottpropertytax Thanks for the reply Kimberley. So if I have a 5 year fixed mortgage it makes absolutely no sense to pay this down as effectively i'm paying more tax on profit. I have a very low mortgage on a BTL and was thinking of paying it off. But I may as well claim some finance costs back. I'm a high tax payer as well.

[@kimberleyshapcottpropertytax]

You will get tax relief on the loans so it depends whether with interest increases it makes more sense to pay off or keep paying.

[@tali2001uk]

How do I organise my SA tax returns paperwork?

[@kimberleyshapcottpropertytax]

Check out the video on the channel for accounting records and rental accounts. kzbin.info/www/bejne/emelo597gtaWq5osi=_PYwoAse2p5vhUb- kzbin.info/www/bejne/rZ2snmd8oamafZIsi=LUeiuKlhfg60ThHu

[@Markuliss]

How do you actually claim this on the return - not sure it lets you claim any fianancial costs?

[@kimberleyshapcottpropertytax]

Box 26 on the tax return is where you record these costs.

[@roscoenash1003]

Can you not HMRC to link to you, I've actually learnt what to do and safe myself stress for the future. Would donate but barely breaking even after so many expense rises, Thanks

[@kimberleyshapcottpropertytax]

Thanks for the feedback. I'm glad you found it useful.

[@anita4371]

If you are married landlords with 50 : 50 joint ownership , do you write down expenses and rent at 50% . In the notes section do I tell HMRC my husbands name so they can follow up the other half of the rent/expenses?

[@kimberleyshapcottpropertytax]

If owned jointly then you will both need to independently submit tax returns to HMRC showing your proportion of the rental income and expenses. This will then be taxed based on your individual personal circumstances. You do not need to mention your husband in your tax return. It is self assessment so he should be reporting to them without them having to follow up with him.

[@anita4371]

We made a loss for rental income. So can we carry forward the mortgae interest. As we jointly own the property do we write down half the finance cost ( i.e total fonance cost is £9039.79 , so on our individual tax returns we put to carry forward £4519.895?)

[@kimberleyshapcottpropertytax]

You can carry both the loss and the unused finance cost forward to use in future periods when you do have rental profits.

[@anita4371]

@kimberleyshapcottpropertytax but the unused finance do we divide by 2 as we own the rental 50% each?

[@kimberleyshapcottpropertytax]

It will depend on each persons tax position. The unused finance cost will be carried forward individually by each person and used as appropriate by each based on their other income position as well.

[@guymachin7287]

Hi I've just set up a limited company to build a property portfolio,I have a house on a mortgage and want to move it over to the limited company on a BTL. I have a low credit score and have some defaults and it's crushing me with interest rate implications, is there a way I can get around this, I don't know what to do I don't know who to speak to regarding bad debt? Please can you help me? Thanks Guy

[@kimberleyshapcottpropertytax]

Depending on the value of the property there would be costs to move it to the limited company which may not be advisable. I would suggest speaking to an Mortgage Broker to see what options you have available on the property.

[@KatiePitts-hn7px]

How do I work out non financial costs please?

[@kimberleyshapcottpropertytax]

Can you give an example of the type of costs you mean?

[@nikkion2140]

I wonder if the calculation will be very different in the scenario where all incomes are from rents (i.e. no pay salary)?

[@kimberleyshapcottpropertytax]

The main impact is when someone is close to the higher rate tax threshold - regardless of whether it is employment or rental income.

[@KG-tr1gl]

I don’t work at all. My Property income is £18,000.00 Mortgage payments are 11,000.00 Management fees £1,600.00 How is it i owe them money? It would have been nice if you showed this on a tax form.

[@kimberleyshapcottpropertytax]

Have you included the interest tax relief credit which is calculated after the tax calculation before the final liability to be paid is made. I would not have thought you would owe them any tax.

[@house9464]

Salary B4 tax if your rents are only 20k then I am assuming the salary isn't coming out of the profits therefore implying this is a work salary from PAYE?? If this is the case then you've already paid tax on it and in your example your not taking away the tax portion in your computation IE a pre tax salary and rental income = 56k putting Yiu in the higher tax bracket before you've even started ..

[@kimberleyshapcottpropertytax]

For rental profits you take the rental income and rental expenses to give your rental profits which are then added into the tax calculation to assess the total income. The only part not included before the tax calculation is any finance costs such as mortgage interest.

[@Andy-si1pl]

If you forgot to claim 20% of your mortgage interest (because it was the lowest of the 3) Residential Property Finance costs in previous tax years (say 20/21, 21/22 and 22/23), can you amend you 22/23 and sum them all up and put in "Unused residential property finance costs brought forward: (optional)"

[@sammillward7551]

That’s what I did this year as I didn’t know about it.

[@kimberleyshapcottpropertytax]

You would need to send in amended tax returns for the periods that you had not included it to claim the tax relief which would then be carried forward each year. You can go back up to 4 years to amend your tax returns.

[@robakhh]

Shouldn’t be in calculation £1000 rental income relief?

[@kimberleyshapcottpropertytax]

Thanks for the feedback. As always with tax there are reliefs and exemptions available. This example has kept it as simple as possible to show the concept with mortgage interest. There are other figures that can be taken into account and the other videos on the channel show some of these expenses or allowances available.

[@friggintv9902]

Thanks for the video. The mortgage relief example Would be good. My mortgage borrowing is low and the costs per year is less than £1000

[@kimberleyshapcottpropertytax]

If you have a mortgage then the allowance won't be available to you. It generally works best when there is no lending on a property with minimal expenses.

[@DanielS10291]

I am too stupid to understand this. Maybe i need an accountant… why cant they just leave it on the form???

[@kimberleyshapcottpropertytax]

It is on the form however it is a different box to fill in now later in the form compared to where it used to be.

[@KG-tr1gl]

I don't get it either.

[@DanielS10291]

@@kimberleyshapcottpropertytax oh really? I had better check my form again, thank you

[@markchandler001]

I did exactly what you’ve shown but I’ve ended up with a figure of approx minus 18000 which is obviously not correct? Would this be slightly different if claiming Rent a Room relief? The form is much more completed for us non-accountants. Is there a video to show us where to put these figures?

[@DanielS10291]

Today is the day i sort this! If anyone found it please let me know!

[@willb249]

So if rents are 20k, costs are 2k, mortgages are 15k, then there's only 3 k positive cash flow. Most of this goes to the tax man.... better have great capital growth then..oh no, that also goes to the tax man....

[@kimberleyshapcottpropertytax]

The tax is calculated on the £18k profit then you will receive a tax credit on the £15k at 20% which will reduce any tax payable to what would be paid if treated as £2k profit. For any basic rate tax payer there will be no impact. The key question is when someone is in the higher rates of tax so there is only 20% tax relief and not 40%.

[@nikkion2140]

How to cintact you directly pls?

[@kimberleyshapcottpropertytax]

Contact us at www.shapcotts-accountants.co.uk

[@joemensah9557]

Your explanation isn’t clear. What is Finance cost and what is non- finance cost . Will make it more understandable if you define these terminologies on the onset

[@kimberleyshapcottpropertytax]

Thanks for the feedback. I'll see about adding a video on the channel to help explain this aspect of things more clearly for everyone.