How the tax relief on finance charges work when there's a loss on a property business.
This is for the 2017-18 tax year.
I think I understand the normal case:
Rental Income: 20000
Repairs: 8000
Legal and Professional: 3000
Finance costs:4000
Profit=20000-8000-3000-4000*75%=6000
Tax=6000*45%=2700
Tax relief on finance costs: 1000*20%=200
Total tax due (on property business)=2700-200=2500
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But in my case the let will be commencing on 1st March:
rental income: 2000 (36 days)
(pre letting) Repairs: 8000
Legal and professional: 300
Finance costs:3333
Profit(loss): 2000-8000-300-3333*75%=(8800)
Tax relief on finance costs: 833*20%=166
The 8800 loss I carry forward to next year, that's easy. But what do I do with the 166 of tax relief on the 25% of the finance charges. I think there are three options:
1. I lose it (it's a small enough amount of money that it doesn't really matter)
2. I can offset it against other income tax I will be paying in 2017-18
3. I carry it forwards to next year alongside the 8800 and reduce next years property income tax bill by 166 (plus 20% of 50% of whatever next years finance charges are)
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And a question I asked previously but got no replies: does anyone know if the rental loss affects adjusted income for pension tapering in the 2017-18 tax year or the 2018-19 tax year when it will be used?
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