BTL income - property allowance

[AndyD360]

Hi all,

Have a BTL with my brother 50/50 split.

Only have the one property so no additional earnings outside our day jobs.

In terms of the ‘property allowance’ am assuming if we earn less than £1000 each (i.e. net profit under £2000) in a tax year we have no tax to pay on this?

Cheers

[assadlion]

It’s based on rental income not profit
Eg mortgage interest charges are not deductible anymore
Unless in ltd company

[Eric Mc]

OP - what is your share of the GROSS rental income (before any expense claims or deductions)? If it is over £1,000, you need to complete a tax return.

[mikeh501]

But the tax payable is only based on your profit not revenue. So once youve worked out your profit if thats <1k each then you wont have anything to pay. You still need a tax return however.

[anonymous-user]

It’s based on income, not profit.

https://www.gov.uk/guidance/tax-free-allowances-on...

[AndyD360]

Thanks for the replies - think I’d confused myself with the changes in tax relief.

For peace of mind, believe the calculations should look like this?

Gross rental income - mortgage tax relief (20% of mortgage payments) - allowable expenses = profit for tax purposes

Once profit is calculated, can take property allowance off of this figure (bearing in mind I part own this, can we both take that £1000 from respective earnings)?

The resultant figure is then the taxable amount that needs to be declared.

[anonymous-user]

There are much more knowledgeable people on here but until they come along and correct my waffle;

I think that the case is, if your gross is under £1000 you can either take the property allowance or do a tax return and pay the appropriate taxes. If the gross is over £1000 you can only do a tax return and pay the appropriate taxes. It's not a case of taking both.

Also, I don't think you can take tax relief on the mortgage now unless it's commercial. If it's a normal residential BTL then there are deducible expenses but mortgage interest isn't included.

I may be completely wrong but normally others such as Groat and Eric Mc are really knowledgeable here and I'm sure can explain better.

[Eric Mc]

AndyD360 said:

Thanks for the replies - think I’d confused myself with the changes in tax relief.

For peace of mind, believe the calculations should look like this?

Gross rental income - mortgage tax relief (20% of mortgage payments) - allowable expenses = profit for tax purposes

Once profit is calculated, can take property allowance off of this figure (bearing in mind I part own this, can we both take that £1000 from respective earnings)?

The resultant figure is then the taxable amount that needs to be declared.

Do not deduct the mortgage interest amount when calculating the taxable rental profit.
Instead, calculate 20% of the interest amount for the tax year and deduct it from your tax liability.

[Jockman]

AndyD360 said:

Thanks for the replies - think I’d confused myself with the changes in tax relief.

For peace of mind, believe the calculations should look like this?

Gross rental income - mortgage tax relief (20% of mortgage payments) - allowable expenses = profit for tax purposes

Once profit is calculated, can take property allowance off of this figure (bearing in mind I part own this, can we both take that £1000 from respective earnings)?

The resultant figure is then the taxable amount that needs to be declared.

Just had a quick look and it seems like you can either claim expenses or use the property allowance. Not both.

[mwstewart]

Jockman said:

AndyD360 said:

...
Once profit is calculated, can take property allowance off of this figure (bearing in mind I part own this, can we both take that £1000 from respective earnings)?
...

Just had a quick look and it seems like you can either claim expenses or use the property allowance. Not both.

That's correct.