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Where Taxpayers and Advisers Meet

Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

AndrewSmithTax
Posts:3
Joined:Thu Sep 08, 2016 11:04 am
Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby AndrewSmithTax » Wed Jan 16, 2019 10:22 pm

Hi

My wife and I own a property as tenants in common with the following shares: 99% her, 1% me.
We have submitted a Form 17 declaration, and HMRC have acknowledged it.
We have a joint mortgage on the property, paid from a joint current account.

Suppose the rent is £10,000pa.
The mortgage interest is £5000pa.

2 questions:
1. On her tax return, what proportion of the mortgage interest can I claim relief on? Is it:
a) 50% (rationale: it's a joint loan, after all)
b) 100% (rationale: we apply the expense to the property before splitting the profit)
c) 99% (rationale: we apply the expense in proportion to the unequal ownership)

2. Does the answer change if the mortgage were to be paid from an account solely in her name?

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby bd6759 » Thu Jan 17, 2019 12:06 am

99% of the income and 99% of the expenses. It doesn't matter which account the mortgage is paid from.

Don't forget the new mortgage interest rules. Only 75% of the mortgage can be an expense (assuming it is a residential property).

AndrewSmithTax
Posts:3
Joined:Thu Sep 08, 2016 11:04 am

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby AndrewSmithTax » Thu Jan 17, 2019 1:17 pm

Thanks - yes, am aware of the new rules.
However, as my wife is only a basic rate taxpayer (this property is her only income) I was under the impression that this wouldn't affect her.
According to:
https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords
"in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction"

So if our mortgage interest is £5000 her 99% share would be 4950.
75% would be an expense = £3712.50.
25% would be a basic rate tax deduction =  £1237.50.

Are we OK to apply this basic rate tax deduction entirely to her tax return?

D&C
Posts:61
Joined:Thu Dec 22, 2016 10:04 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby D&C » Thu Jan 17, 2019 10:26 pm

However, as my wife is only a basic rate taxpayer (this property is her only income) I was under the impression that this wouldn't affect her.
If only it were that simple. It may not affect her but it could easily have an impact. Depends on her overall circumstances.

The basic rate reduction would only be £247.50

There is part of the Self Assessment return where this can be claimed.

I don't understand why she wouldn't claim this on her return? If the interest is 99% applicate to her what makes you think the 99% (split between expenses and tax reducer) would be put appropriate for someone else's return?

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby robbob » Fri Jan 18, 2019 10:12 am

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

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby AnthonyR » Tue Jan 22, 2019 10:58 am

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/761697/2017-18-exc-indi-v3.0.pdf
As an aside, I love they fact they refer to us as 'customers'... like we're valued by HMRC and voluntarily chose to use their services....
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

TomNelson
Posts:2
Joined:Sat Jan 12, 2019 7:16 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby TomNelson » Sun Jan 27, 2019 3:39 pm

I am in a similar situation to you. Also own 1% of a property, with my wife owning the other 99%. Unlike you though we don’t have a mortgage on the property, we paid it off before started renting the house out. I am working on the (perhaps mistaken) assumption that as my 1% share of the income from the rental is only a few hundred pounds, definitely well less than £1,000, I won’t need to declare the income or complete a tax return. My wife’s share will mean she will need to complete a tax return, she also has a small additional income from a job one day a week, the two combined will be around £13,000.

mnbh2
Posts:5
Joined:Mon Jun 12, 2017 12:00 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby mnbh2 » Tue Oct 06, 2020 11:54 am

It doesn't matter which account the mortgage is paid from.
Late to the discussion. Can you elaborate on this ? If the ownership husband:wife is 1:99 and the husband pays all of the mortgage from his account, can the wife still claim 99% of tax credit on mortgage interest even though the mortgage is fully paid by the husband?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby maths » Tue Oct 06, 2020 1:15 pm

I believe this topic was discussed at length some years ago; not sure everybody agreed.

Both spouses must be parties to the mortgage in order to obtain relief for interest paid (ignoring changes for discussion purposes).

If property held as tenants in common 99/1 and ITA 2007 s 836 doesn't apply then income is split accordingly. However, there is no specific requirement for expenses to be split in the same percentages.

In the absence of any specific agreement re expenses split they should be split 99/1.

To be deductible an expense must be incurred. Payment of the mortgage interest out of a joint account would mean each spouse had paid 50% of the interest (almost certainly the bank account would be held as joint beneficial tenants not beneficial tenants in common). It may be that HMRC would have a problem with income of 1% but an expense deduction of 50% which would no doubt generate significant losses for the 1% holder.

If each spouse had their own bank account from which expenses were discharged then again. in the absence of any agreement each would need to pay 50% of the interest.

Assume one spouse (H) pays all the interest out of his account. It would be necessary to ascertain whether H was paying all the interest on that occasion or whether he was simply discharging W's obligation and W then owed her contribution to H ie W would be incurring the expense.

If H discharged the expense and W did not refund her contribution then W would not be entitled to any deduction.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Joint mortgage but unequal income shares in rental property: can we claim full mortgage interest relief?

Postby bd6759 » Wed Oct 07, 2020 12:36 am

I don’t think your last sentence is correct. If it were, do you have a time limit within which W has to repay H?


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