How do I claim back the 25% of Residential Finance cost under Section 24 when I am in a Property Partnership?Make Text Bigger
My wife and I established a partnership with HMRC in 2012 when we started a small business – which currently involves renting out two residential properties in Plymouth. Being retired our only other income is from UK pensions, so we are basic rate taxpayers. As my wife does the bulk of the work and made a substantial contribution to our investment we normally use the paper partnership forms to divide the profits 90% in her favor and 10% to me. This also helps to keep me away from higher rates of income tax!
Using this system, we calculate our share of the profits and proceed to undertake our individual self-assessments on-line. We quickly found out in 2012 that, when starting the self assessment process, if we ticked the box to say we were in a partnership and ticked the box to say that we had income from property, then we had basically entered our figures twice. We phoned HMRC and a representative advised us to just enter our income, expenses and profits on the SA800 form, to complete an SA 801 to enter our profits in the Partnership section and not to tick the ‘Income from Property’ box when completing self assessment. This has worked fine up until this year!
But, with the changes to Residential finance costs (25% not being included this year) we were keen to try and find out how we could claim back the 25%, albeit at the basic rate of tax. Three phone calls later and two conversations with a tax technician called Paul left us thinking that maybe we should not have started a partnership in the first place?
I have experimented with my on-line self assessment and if I now tick Income from Property and do not declare that I am in a partnership then finally I get the opportunity to claim back my share of the Residential finance costs not included in Loan Interest and other financial costs.
Everything that I read on your excellent website tells me that it is quite common for partnerships to be established for dividing up profits from residential rental income. So, I am assuming that my wife and I are not the only people with the problem – that is that if you declare your profits as a partnership, you have no way of claiming back your share of the Residential finance costs not included in Loan Interest and other financial costs.
Or have I missed something?
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