How does rental income affect working tax credits? I pay mortgage interest and management fees on the rental property, and I’m about to apply for working tax credit. I would like to know how this will be worked out

Arthur Weller replies:
Until April 2017, rental income for tax credit purposes has been defined as gross rental income less allowable expenses, where allowable expenses include interest payments to a lender. When new rules are fully phased in (from 6 April 2020 onwards), interest paid to a lender will not reduce income. So, for example, if currently gross rental income is £20,000, other allowable expenses are £3,000 and interest is £6,000, income is therefore £11,000 (i.e. £20K – £3K – £6K). After 6 April 2020, income will be £17,000 (i.e. £20K – £3K). Allowance for interest paid to a lender will be made broadly by reducing the final tax figure by (20% x interest paid). So, in our example, this individual can reduce the final tax figure by £1,200 (i.e. 20% x 6,000). But income will be the higher figure of £17,000, which will impact on tax credit claims.