BIM45750 - Specific deductions: interest: examples
| Example 1 | |||
| Trader A takes out a loan £30,000 to acquire his main residence. Two out of the ten rooms are used exclusively for business purposes. Total interest paid amounts to £3,000. | |||
| a) | Mortgage
interest relief
Loan attributable to private residence = £30,000 x 8/10 = £24,000 Interest relief available = £3,000 x 24,000/30,000 = £2,400 |
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| b) | Business
deduction
Loan attributable to business use = £30,000 x 2/10 = £6,000 Interest relief available = £3,000 x 6,000/30,000 = £600 |
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| If the loan were in MIRAS A would have received relief on £3,000 at 15%. The business deduction would therefore be calculated as follows: | |||
| A liable at 25% | |||
| Relief due on business deduction |
£600 x 25% = |
£150 |
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| less MIRAS |
£600 x 15% = |
£90 |
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| Additional relief due |
£60 |
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| Convert additional relief to a deduction |
£60 | 25% |
£240 |
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A liable at 40% |
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Relief due on business deduction |
£600 x 40% = |
£240 |
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less MIRAS |
£600 x 15% = |
£90 |
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Additional relief due |
£150 |
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Convert additional relief to a deduction |
£150 | 40% = |
£375 |
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A marginally liable (say £200) at 40% |
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Relief due on business deduction |
£200 x 40% = |
£80 |
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£400 x 25% = |
£100 |
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£180 |
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less MIRAS |
£600 x 15% = |
£90 |
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Additional relief due |
£90 |
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Convert additional relief to a deduction |
£80 | 40% = |
£200 |
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£10 | 25% = |
£40 |
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£90 Relief, £240 Deductions |
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Example 2 |
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Facts as above except loan of £50,000 and interest paid of £5,000. |
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a) |
Mortgage interest relief
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This exceeds the statutory limit (£30,000) for which relief is available. |
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Interest relief restricted to: £5,000 x £30,000/£50,000 = £3,000 |
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b) | Business
deduction
Loan attributable to business use = £50,000 x 2/10 = £10,000 Interest deduction available = £5,000 x 10,000/50,000 = £1,000 |
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If the loan were in MIRAS the business deduction would still be £1,000 because the part of the loan attributable to the residential use is not less than the £30,000 qualifying maximum. |
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Example 3 |
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Trader B takes out a loan £30,000 to acquire his main residence. Two out of the ten rooms are used solely for business purposes for periods amounting to 26 weeks in the year. Total interest paid amounts to £3,000 |
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a) |
Mortgage interest relief | ||
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Loan attributable to private residence | =£30,000 x 8/10 + | ||
| £30,000 x 2/10 x 26/52 | |||
| =£27,000 | |||
| Interest relief available | =£3,000 x 27,000/30,000 | ||
| =£2,700 | |||
| b) | Business deduction | ||
| Loan attributable to business use | =£30,000 x 2/10 x 26/52 | ||
| =£3,000 | |||
| Interest relief available | =£3,000 x 3,000/30,000 | ||
| =£300 | |||
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If the loan were in MIRAS B would have received relief on £3,000 at 15%. The business deduction would therefore be calculated as follows: |
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B liable at 25% |
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| Relief due on business deduction | £300 x 25% = |
£75 |
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| less MIRAS | £300 x 15% = |
£45 |
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| Additional relief due |
£30 |
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| Convert additional relief to a deduction | £30 | 25% = |
£120 |
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B liable at 40% |
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| Relief due on business deduction | £300 x 40% = |
£120 |
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| less MIRAS | £300 x 15% = |
£45 |
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| Additional relief due |
£75 |
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| Convert additional relief to a deduction | £75 | 40% = | £188 | |
| B marginally liable (say £200) at 40% | |||
| Relief due on business deduction | £200 x 40% = |
£80 |
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| £100 x 25% = |
£25 |
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£105 |
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| less MIRAS | £100 | 15% = |
£45 |
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| Additional relief due |
£60 |
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| Convert additional relief to a deduction | £60 | 40% = £150 Deduction | ||
| Example 4 | |||
| Facts as in Example 3 except loan of £50,000 and interest paid of £5,000. | |||
| a) | Mortgage interest relief | ||
| Loan attributable to private residence | =£50,000 x 8/10 + | ||
| £50,000 x 2/10 x 26/52 | |||
| =£45,000 | |||
| This exceeds the statutory limit (£30,000) for which relief is available. | |||
| Interest relief restricted to: | =£5,000 x 30,000/50,000 | ||
| =£3,000 | |||
| b) | Business deduction | ||
| Loan attributable to business use | =£50,000 x 2/10 x 26/52 | ||
| =£5,000 | |||
| Interest deduction available | =£5,000 x 5,000/50,000 | ||
| = £500 | |||
| If the loan was in MIRAS the business deduction would still be £500 because the part of the loan attributable to the residential use is not less than the £30,000 qualifying maximum | |||
| Example 5 | |||
| C takes out a loan of £40,000 to acquire her main residence. Three out of the ten rooms are let exclusively in her Schedule A business. Total interest paid amounts to £4,000. | |||
| a) | Mortgage interest relief | ||
| Loan attributable to private residence | =£40,000 x 7/10 + | ||
| =£28,000 | |||
| Interest relief available | =£4,000 x 28,000/40,000 | ||
| =£2,800 | |||
| b) | Business deduction | ||
| Loan attributable to business use | =£40,000 x 3/10 | ||
| =£12,000 | |||
| Interest deduction available | =£4,000 x 12,000/40,000 | ||
| =£1,200 | |||
| If the loan was in MIRAS because the part of the loan attributable to residential use is less than the £30,000 qualifying maximum, part of the interest relating to business use will have been relieved through MIRAS: | |||
| Interest qualifying for MIRAS | =£4,000 x 30,000/40,000 | ||
| =£3,000 | |||
| Interest attributable to private residence | =£4,000 x 28,000/40,000 | ||
| =£2,800 | |||
| Interest attributable to business use | =£200 | ||
| MIRAS given | =£200 x 15% | ||
| =£30 | |||
| The business deduction would therefore be calculated as follows: | |||
| C liable at 25% | |||
| Relief due on business deduction | |||
| less MIRAS (see above) | £1,200 x 25% = |
£300 |
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| Additional relief due |
£30 |
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£270 |
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| Convert additional relief to a deduction | |||
| £270 | 25% = |
£1,080 |
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| C liable at 40% | |||
| Relief due on business deduction | |||
| less MIRAS | £1,200 x 40% = |
£240 |
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| Additional relief due |
£30 |
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£450 |
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| Convert additional relief to a deduction | |||
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£450 | 40% = |
£1,125 |
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| C marginally liable (say £200) at 40% | |||
| Relief due on business deduction | |||
| £200 x 40% = |
£80 |
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| £1,000 x 25% = |
£250 |
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| less MIRAS |
£330 |
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| Additional relief due |
£30 |
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|
£300 |
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| Convert additional relief to a deduction | |||
| £80 | 40% = |
£200 |
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| £220 | 25% = |
£880 |
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£300 relief, £1,080 deduction |
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