Deal with restrictable property finance charges in Personal Tax
Enter restrictable and non-restrictable finance charges
- SelectEdit, thenSchedule Editor.
- SelectIncome from from Property.
- Select theOther Income and Expendituretab.noteTheFinance chargesbox is inacative.
- In theOther Income and Expendituredialog, enter restrictable and non-restrictable finance charges.noteRestrictable finance charges will be split in the last 2 boxes as follows:
- 75/25 for 2017/18.
- 50/50 for 2018/19.
- 25/75 for 2019/20.
There will be no direct deduction for restrictable charges from 2020/21 and only the tax reduction will apply. The deductible element will reduce profits on the property. The remaining non-deductible element will be applied as a tax reducer in the main tax computation
Guidance from HMRC
The following guidance from HMRC will help you to understand what is restricable and what is not-restrictable:
The following extract from Tax relief for residential landlords explains how it's worked out:
The reduction is the basic rate value (currently 20%) of the lower of:
If you cannot use the finance charge in the current year, for example if the profit is covered by the personal allowance or by losses brought forward, then the unused finance charges can be carried forward to the following year.
To find the workings for loss utilisation and enter any brought forward loss for new clients manually: go to the
Information Explorer
, Others
, then Property Claims and Reliefs
. note
There is an
HMRC Special 34
that states if you're claiming the property allowance in the current year and have unused Residential Finance costs from the previous year, you cannot bring them forward to use in the current year and neither can you carry them forward into any other year. To file a return in this situation, you'll need to edit the property or foreign pages to remove the brought forward residential finance costs from box PRO45 or FOR24.2, to prevent a CAL error.Self Assessment: SA903 Trust and Estate UK Property
You'll only receive the 20% tax reducer directly within the tax computation if the trust pays tax at the higher trust rates. The trust pays at the lower trust rates, the reducer is passed to the beneficiary through Form R185 for them to claim themselves.
HMRC's Trust and Estate UK Property Notes to Form SA903 explain where to enter residential property finance costs:
Accumulation or discretionary trusts enter residential finance costs in box 3.46. This amount will be used to calculate a reduction in income tax.For interest in possession trusts and estates of deceased persons, finance costs must not be entered in box 3.46. Instead, the finance costs are used by the beneficiaries as a basis for calculating their basic rate tax reductions. You’ll need to tell the beneficiaries the figures for the profits of each property business and the finance costs that relate to each business.