Tax Credits Other Income & Property Mortgage Int

Tax Credits Other Income & Property Mortgage Interest Deduction for P&L Changes from 17/18

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Hi All, I can't seem to get an answer from HMRC Tax Credits for the now Tax Year 2017/18 and the changes on how Rental Profits are Calculated for Tax.

With the now Restriction of Mortgage Interest coming in from 2017/18 (75% and 25% adjustment in Tax Calculation for Basic Rate Payers), and continuing over the next 3 Tax Years until 5th April 2020. I have no problem with this calculation but does this mean for the purpose of Tax Credits or other Means Tested Benefits that our clients will have a greater Other Income due to this Change?? I.e. Client has £10k Rental Income but has an Interest Only Mortgage and has £8k in Interest, thus before any other expenses has £2k Profits per 2016/17, but going forward with the deduction coming in the Tax Calculation at Basic Rate, therefore by 5th April 2020 his/her Profit will be the £10k Income before the deduction at Basic Rate, does this mean for Tax Credits purpose then his/her Other Income has now Increased to £10k instead of previous being £2k.

As I said can't get any sense from Tax Credits and our Tax Advisor Service can't advise as its to do with Benefits!!! Confused as a few clients will have reduced Tax Credits if the Interest for their Mortgages isn't an allowable Expense!!

 

Many Thanks

Replies (5)

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By Tim Vane
13th Jun 2017 15:44

The rental income for tax credit purposes is the annual taxable profits of the business. So yes, I would expect (and hope) that the same interest relief restrictions apply.

EDIT - seems I was wrong - as wanderer points out below

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Replying to Tim Vane:
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By Wanderer
13th Jun 2017 15:40

x

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By Wanderer
13th Jun 2017 15:43

This:-
http://revenuebenefits.org.uk/tax-credits/guidance/how-do-tax-credits-wo...
suggests that the restriction is disregarded.

"However, tax credit claimants are protected from the unintended consequences that flow from the new rules so that, in calculating property income, the restrictions in section 272A of ITTOIA (restricting deductions for finance costs related to residential property) and section 399A of ITA (property partnerships: restriction of relief for investment loan interest) are disregarded."

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Replying to Wanderer:
By Tim Vane
13th Jun 2017 15:44

Good catch. I had not spotted that. There's the answer then.

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By HeavyMetalMike
13th Jun 2017 21:44

An individual with tax credits but also has a rental property? My, how the other half live. And yet, unless I am misreading something, the new rules don't effect these types so they get their tax credits? Golly.

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