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Certificates of Mortgage Interest Paid & Landlords

Anyone Bother Asking for these Tax Certificates Anymore? Are They Any Good for Accruals Accounting?

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I have always been in the habit of asking for these in the past. I have always worked out the accruals rental profit and deducted the interest paid as per the annual tax certificate of mortgage interest paid for the tax year.

However, having had some difficulty in obtaining these for a few clients recently, I have just paused for thought.

If the rental accounts are prepared on a cash basis then there appears to be a cap of just £500 per annum for interest paid etc. (ITTOIA 2005, ss 51A, 57B)

For accruals accounting, on the other hand, it would appear slightly incorrect to deduct the mortgage interest figure as per the annual tax certificate because that shows interest PAID during the year rather than interest payable ACCRUING over the tax year. Or is this merely worrying over trifles?

Or are you disecting the two annual calendar year (up to 31 December) mortgage interest statements which the tax year falls into?

What are the rest of you doing to work out the interest/finance charges for accruals accounts for landlords? 

It does appear that on the odd occasion the annual mortgage interest statements contain certain finance charges which do not appear on the tax year certificates of interest paid (because these merely show the interest element only of all finance costs).

And has HMRC ever asked anyone to produce these tax certificates on enquiry.

Just wondering!


Replies (7)

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By Winnie Wiggleroom
21st Sep 2021 07:21

this is especially relevant with so many taking payment holidays last year, we had one client the other day with a number of BTLs on interest only mortgages, whilst in a normal year we can just take his payments as the interest, last year he hardly paid anything but the interest still accrued so you need a statement from the mortgage co.

Thanks (1)
By Mr_awol
21st Sep 2021 08:34

I haven't seen one for ages - apart from the ones provided on partnership loans that is.

Id be surprised if there are (m)any mortgages still applying annual interest these days. Most or all clients get proper bank statements for their mortgages, or online banking reports, showing the interest applied monthly (accruing daily, of course).

Thanks (0)
By rmillaree
21st Sep 2021 08:44

"If the rental accounts are prepared on a cash basis then there appears to be a cap of just £500 per annum for interest paid etc. (ITTOIA 2005, ss 51A, 57B)"

Note S 51A and 57B both mention person carrying on trade so presuming there is no trade i am presuming 51A and 57B are simply not relevant -
There is no mention of cap in the PIM

The following icaew linked webinar printout specifically confirms (back in mid 2018) that the £500 restriction is not applicable with regard to property income.

Answer: Under the cash basis for trades, loan interest is restricted to a flat £500 so some businesses would be at a disadvantage and GAAP may give a higher deduction. This £500 restriction was not transferred over into the cash basis for property businesses and the finance cost can be calculated in the normal way but is then subject to the new finance cost restrictions.

Thanks (2)
Replying to rmillaree:
By Paul Crowley
21st Sep 2021 10:52

Agree in that I considered the £500 is a trade only issue
But I still ask clients to get certificates
Some do
Some do not

Thanks (0)
By ireallyshouldknowthisbut
21st Sep 2021 09:14

I always try to get mortgage statements.

This solves numerous issues such as:
1. The client has remortgaged into joint names
2. Fees are added, often very significant
3. The payments on 'interest only' mortgages are not interest only
4. The clients have borrowed more and now exceeded the sum invested in the business

We do lots of property taxes and probably 1 in 10 or 15 statements (so that's several a week) contain these issues.

The tax certificates are a poor substitute as they omit fees added and often omit the borrowing level.

Thanks (2)
Replying to ireallyshouldknowthisbut:
By Paul Crowley
21st Sep 2021 10:54

I try to get both
But, well you know clients
"same as last year"
No, you remortgaged 15 months ago

Thanks (0)
By lionofludesch
21st Sep 2021 10:22

I always liked to have them as it was much easier than tracing through payments and, as pointed out above, Covid means that, even with an interest-only loan, relying on the payments will be even more unreliable than usual for 2020/21 onwards until the pandemic unwinds.

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