Mortgage Interest deduction

We have a property that's rented out in joint names. From this I don't believe we have to self assess as our Net profit is less than £2500 per year. Is this correct? It can be collected from PAYE by us updating yearly the figures via HMRC? We deduct our expenses and don't claim the £1k property allowance. We currently don't deduct any kind of relief for our repayment mortgage interest. Can we? If so our example figures are (Without being split 50/50): income £6780 allowable expenses £2850 (management, ground rent, service charge) profit £3930 tax @ 20% £786 Tax reduction for finance cost (3665*20%) = £733 To pay £53 Is that correct? If my wife were to become a higher rate tax payer I presume we'd split incoming and outgoing 50/50 before we work out the tax individually?

Hi nige106,
As your net profit from rental income is below £2,500 Self Assessment would not be required for rental income.
However, We would advise to consult the Self Assessment criteria tool as other reasons for completing a tax return may have been triggered.
We would also suggest consulting the attached guidance regarding beneficial ownership of property found in TSEM9160 as percentage split may differ from 50/50 so we would be unable to give a definitive answer to your follow up question:
TSEM9160 - Ownership and income tax: legal background: ownership - income follows property
Thank you. 

Many Thanks for the prompt response. We are married and the split is 50/50. Am I correct that I can enter the £3665 figure into box 44 for finance cost reduction? I haven't previously done this, can it be back dated and if so by how long?

Hi ,
 

Thank you for your question.  Box 44 is used for residential property finance costs, so the costs of getting a loan, or alternative finance to buy a residential property and any interest on such a loan or alternative finance payments can be used to calculate a reduction in your Income Tax.  The tax relief that landlords of residential properties get for finance costs has been restricted to the basic rate of Income Tax from 6 April 2020.  If you haven’t previously claimed relief on finance costs, you  may be able to make a claim from 2020-21 onwards  . Thank you .

Many Thanks for the clarification. So on my return I can enter £3665 into box 44 which shall reduce my tax bill by £733 (20%)? I have tried to call, however keep getting passed between Self Assessment and Property income departments without an answer.

Hi,
As the property income is split between you and your wife you enter 50% of the mortgage interest payments in box 44 on the SA105.  
You can make alterations to your tax returns for the last four tax years to the 2020-21 year.  
The guidance is here: If you’ve missed the deadline to change your return
The reduction is the basic rate value (currently 20%) of the lower of either your finance costs (interest on mortgage payments) or your property business profits - the profits of the property business in the tax year (after using any brought forward losses) or finally your adjusted total income - the income (after losses and reliefs and excluding savings and dividends income) that exceeds your personal allowance.  
There is a some really useful guide here: Tax relief for residential landlords: how it's worked out
Thank you.