Tax implication for taking and paying back mortgage payment holiday
9:39 AM, 24th November 2020, 5 years ago
5
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Having taken 3 months mortgage payment holiday, I now would like to pay back those 3 months interest payments that I deferred.
However, the tax implication seems tricky:
1. The reduction of 3 months interest would reduce taxable outgoings, therefore increase taxable income for this tax year?
2. Then if I payback the 3 moths interest, would it be considered as reducing my loan or considered as tax-deductible interest?
Any thoughts or guidance on this would be appreciated
Many thanks
Mike
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Member Since April 2017 - Comments: 163 - Articles: 1
10:12 AM, 24th November 2020, About 5 years ago
Unless I am missing something: 1: Yes, fewer costs, more tax. 2: when you pay back the 3 months interest, that is deductible ( at the new 20% rate). If you pay back part of the loan, that is not interest and not deductible.
Member Since February 2020 - Comments: 360
10:38 AM, 24th November 2020, About 5 years ago
Reply to the comment left by Ross Tulloch at 24/11/2020 – 10:12
I can’t be sure of UK tax law, but in accounting terms wouldn’t the interest cost be classed as accrued expenses.
While the cash has not been paid out, the expense remains hence reducing your taxable profit.
When the cash is paid is irrelevant if you are not using cash accounting.
Member Since January 2020 - Comments: 102
11:45 AM, 24th November 2020, About 5 years ago
Reply to the comment left by at 24/11/2020 – 10:38
Assuming the accounts aren’t prepared on the cash basis.
Member Since January 2016 - Comments: 473
11:48 AM, 24th November 2020, About 5 years ago
Interest is on the loan is deductable, capital repaid isn’t. I don’t know if you get to choose which of these you pay and in what proportion. Ask your lender what is possible. If they agree to take a large interest payment to ‘catch up’ it will be deductible. If they insist that any payment is a mix of capital and interest only the interest will be deductible.
In any case, your lender should be able to provide you with a statement of interest paid for your tax year stating the interest paid for that year.
Member Since October 2020 - Comments: 1178
5:09 PM, 24th November 2020, About 5 years ago
It can’t be considered payment of the capital or the interest would still be owed.