Chapter 3:Property Income & Investments-Individuals (Practice Question #8)

Good day Sir,

Just to clarify and confirm if I am correct with my computations regarding practice question no.8 (Matthew) for income tax liability considering if there will be mortgaged interest included.

As far as I understand Matthew’s income tax liability will become NIL because he incurred more expenses than his property income. However, I need clarifications if my Income Tax Liability amount of negative 11,840 is correct and will also be treated as expenses and/or the amount of property loss (11,840) to be carried forward into the next tax year 2019/20 and offset against future property profit?

Kindly please confirm I am albeit uncertain.

Here’s my calculations:-

Matthew’s Tax Implications if Cottage 1 is mortgaged

Property Income
Cottage 1 5,000
Cottage 2 4,000
Cottage 3 1,500
Total Property Income 10,500
Less: Mortgage interest (2,400 x 50%) (1,200) (note 1)
Net Property Income 9,300
Less: Personal Allowance (11,850)
Taxable Income (will become NIL) (2,550) (note 2)

Tax Calculation:
Non-Savings Income
(2,550) @ 0% –
Less:: Expenses (allowable deductions)
Cottage 1: (7,500 – 2,400) 5,100 (note 3)
Mortgage interest relief (2,400 x 50% x 20%) 240 (note 4)
Cottage 2 2,000
Cottage 3 4,500
Income Tax Liability (11,840) (note 5)

Notes:
(1) Mortgage interest payable for 2018/19 of 2,400 is only 50% of the interest payable
would be allowed as deductible expense in property income.
(2) Taxable income will become nil, hence no tax charged.
(3) The actual expenses for cottage 1 is only 5,100 (7,500 – 2,400) as 2,400 is the
mortgage interests that was included.
(4) The remaining 50% of mortgage interest is subject to 20% deductible expense
allowed as basic tax rate deduction in computing the tax liability. (5) Income tax liability of negative 11,840 in which an expenses and/or property loss to
be carried forward into the next tax year 2019/20 and offset against future property
income.