Tax Forum :: Free Tax Advice

I have what I hope is a dumb question….

When the new taxation rules on mortgage interest relief are fully implemented I know that there will be still a small amount of relief.
As has been flagged over and over it is possible to have a high “official” rental income even if the real net income (due to mortgage payments is low).

Also – if my income is above £100k then I believe my personal allowance is lost.

So – suppose my official income (which can be made up of rental, employment or shares investments) after all rental maintenance expenses is £110k. At this point, no allowance for mortgages has been applied

Suppose then the allowable tax relief on the buy to let mortgages is £12k

So the official net income is now £98k

The question is – for the purposes of assessing personal allowance eligibility, am I assessed as having £110K income, or £98k income?

I think it SHOULD be £98k – ie I still have the personal allowance.

Am I correct?

Many thanks

No, it's calculated by reference to interest treated as a deduction from income and not a tax adjustment.

As such, after the transitional period, £110k would be used. (In the current year you would still exceed £100,000 by £1,000).

Ok thankyou for a speedy response.

So - to be absolutely clear I think what you are saying is that

- Pre-Section 24 – Mortgage payments are taken off the bottom line then tax and personal allowance calculations done on the balance

- Post Section 24 (full implementation) – Tax and personal allowance calculations are done BEFORE any allowance for mortgage interest. THEN, the 20% Mortgage interest relief is applied.

So not only is the amount of income to be taxed greater but the withdrawal of personal allowance is ratcheted.

Is this correct?

Yet another double whammy!