AndrewSmithTax
25% would be a basic rate tax deduction = £1237.50.
D&C
The basic rate reduction would only be £247.50
In some respects although you are both quoting different figures here i think you are both correct in your assumptions.
I would add as follows - there are two relevant totals and you are each quoting one of them
- one the tax return box entry and the other potential tax relief available.
Andrewsmith - you are correct that the £1,238 is entered on the tax return - note its not a "tax deduction" as such though hence the helpful comments from D&C- the actual box description is called "residential finance costs not included in box 26" - the box number being box 44 - uk property page 2.
D&C has quoted the actual tax credit that MAY be available for relief and that is all that is POTENTIALLY available as a credit against tax paid - D&C is rightly warning the credit may not be available for all individuals even if they have paid tax!
The hmrc con here is in the detail - the potential tax credit generated cannot be set against either tax on savings or dividend income - so the income would need to be the more standard salary/self employment or property profit itself - hopefully the odds are in your favour in this regard in that most people will be eligible - main losers being lower salary dividend takers (hmmm thats a strikingly high % of the property returns i do ! - hmrc do a con properly.)
https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies
How the tax reduction is worked out
excluding savings and dividends income
To add insult to the potential injury hmrc have another con up their sleaves (if they were in business advertising standards would probably have stopped them trading by now
)
The final insult is that hmrc cant even do their own sums correctly some of the time so when you submit your tax return there is a small chance hmrc may not correctly calculate the relief when processing your return - there are 97 (todays count - that may be 98 tomorrow - i thought i hit the last one when i found number 91 a couple of months back) different circumstances you need to check to ensure the calculated figure aint wrong. some of them come with some fund notes (look at number 96 for starters) - exclusions 92 and 93 affect some calculations involving finance costs - it should only be where marriage transfer or previous losses are in place where the calcs come out wrong.
In this regard i think hmrc at some later date go back through the list and correct their errors - but this could be many months down the line and i am not 100% sure i would trust them to remeber the whole list
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/761697/2017-18-exc-indi-v3.0.pdf