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Finance costs on self assessment

How do I account for the 50% mortgage int which now goes to Residential finance costs when a loss is

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As the property has been empty having major repair work carried out, even without the mortgage interest there is a loss.  So eg loss of £5k, finance charge of £4k.  £2k is allowed to be added to the £5k loss which is carried forward to next year.  What happens to the £2k which would if a gain had been made, have been put into residential finance costs not inc in "loan int and other financial costs".   This would have reduced the tax charge by 20%, but there is no tax charge! 

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By Stilltryin
08th May 2019 17:23

if not availlable for rent"As the property has been empty having major repair work carried out" then none of the interest is claimable and major repair work may fall under capital improvements so not allowable either

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Replying to Stilltryin:
By Wilson Philips
08th May 2019 19:33

I disagree. HMRC Property Income Manual paragraph 2510 is relevant (as regards temporary breaks).

Whether the “major repair” work is revenue or capital does of course depend on the nature of the work. There isn’t enough information to allow me to form an opinion.

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By fawltybasil2575
08th May 2019 19:16

@ Roella (OP).

(1) To answer your question directly, may I ask you to read the following extract from the HMRC guidance:-

"How the tax reduction is worked out

The reduction is the basic rate value (currently 20%) of the lower of:

• finance costs - costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward
• property business profits - the profits of the property business in the tax year (after using any brought forward losses)
• adjusted total income - the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance.

The tax reduction can’t be used to create a tax refund.
If the basic rate tax reduction is calculated using the ‘property business profits’ or ‘adjusted total income’ then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years".

The key lies in the closing sentence - effectively, the "disallowed interest" is carried forward to the following year, and a deduction representing the basic rate tax on that disallowed interest is thus given in that following year.

(2) I must respectfully disagree the above post by "Stilltryin".

(i) Firstly, and taking at face value the reference to "major repair work" (ie assuming that those costs represent wholly "repair" costs) then those costs will be fully allowable (one would of course routinely enquire of the client whether there was any disallowable "capital" element in those "major repair work" costs).

(ii) Secondly, the fact that of necessity there will be a temporary pause in the rents receivable, whilst the repair work is being carried out, will not result in any restriction of the interest payable.


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Replying to fawltybasil2575:
By John Stone
09th May 2019 14:22

Excellent post by Basil correcting earlier advice from 'Stilltryin'. On a different subject entirely, Basil's post earlier today (9.5.19) in response to Sarah Nichols query also impressively clarifies rather confused earlier responses.

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Replying to fawltybasil2575:
By Roella
09th May 2019 15:35

Basil - thank you so much for your detailed response, it has enabled me to now understand the issue.

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By Martin B
09th May 2019 17:37

finance costs ristriction

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