It may come as no surprise to learn that HM Revenue & Customs (HMRC) have started writing to those taxpayers who may have incorrectly completed the property pages on their tax return, specifically in relation to the amount of tax relief that can be obtained on residential property finance costs. They are prompting taxpayers to check their returns and make any necessary corrections via either the Digital Disclosure Service or as an amendment to their tax return as appropriate.
The way tax relief is claimed on residential property finance costs has changed and you can no longer deduct these costs when working out your taxable rental profits for the year. Previously, anyone paying tax at the higher or additional rate of tax could obtain relief at that rate on the finance costs. The change was phased in gradually from 6 April 2017 and with full effect from 6 April 2020. The change results in all of the tax relief available being restricted to the basic rate of tax. This is done by way of a tax reduction and the calculation of the amount due can become complex.
We would urge anyone who thinks they may have completed their property pages incorrectly to check and correct the position, seeking professional advice if necessary. An unprompted disclosure to HMRC will minimise any penalties that could be charged for an inaccuracy where it results in tax being unpaid, understated or over-claimed. Equally do make sure that you are still obtaining tax relief at the basic rate on these costs where it is due. It is still possible to claim a refund of tax overpaid but you only have until 5 April 2022 to submit a claim in respect of the 2017/18 tax year.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.