Mortgage product fee - Still tax deductible for current tax year??

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    Mortgage product fee - Still tax deductible for current tax year??

    If I was to remortgage this month and the arrangement fee is £1999 and the early repayment charge on my previous mortgage is £3000, can I claim both these fees against rental income in my 2017/2108 tax return? I'm a basic rate tax payer. Both fee are solely the cost of financing a new mortgage for the btl.

    Thanks

    #2
    Did you elect to pay the Completion Fee upfront or have it added to the loan? If the former and the loan completes before the end of the current tax year then yes you can use it but definitely not if it is being amortised with the capital borrowing which you show as interest paid for the year.
    i must confess I don’t know the position re the ERP.

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      #3
      Thanks, the mortgage has not yet completed and I could pay upfront, however I was thinking of adding it to the loan but could do either. Seems to be conflicting information, some say the whole amount can be claimed at the time you complete, I’ve not seen it definitively documented anywhere, have you?

      i think the ERC can be claimed as it is a finance cost solely for the BTL, it’s a cost of obtaining finance..... I would think!

      found this

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        #4
        Please consider the following:

        If you were to add the Completion Fee to the loan , then the monthly interest is amortised to include this amount and that would on an annual basis be the figure which you would include in the figures for income and expenditure , however to include this as a lump sum even though it was added to the loan you would need to obtain a monthly payment net of this throughout the term that the loan remains in place with the lender, to include this amount without any adjustment and on an ongoing basis would be a false declaration to HMRC.

        So applying the alternative , paying the Fee upfront , you will claim this once coupled with the annual interest payment calculated on only the actual amount of mortgage borrowed and used in the amount of interest based on the loan itself , If you are using a broker you should receive a KFI document which states exactly what the monthly interest payments are and on the basis of the Completion Fee being paid separately or where you have agreed to have the Fee added and the loan payment amortised.

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          #5
          Thanks for the response but I seem to get a different answer every time, I’m sure most accountants just claim the fee against rental cost entirely even if added to the mortgage. The article below seems to back this up.

          http://www.fyldetaxaccountants.co.uk...for-landlords/

          also

          https://www.gov.uk/hmrc-internal-man...manual/pim2066

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            #6
            I am sorry that you are confused, try thinking about it logically, you can’t have your cake and eat it twice over, you either pay it in full or repay it over say 25 years on which Interest is charged.

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              #7
              Fair enough, but the article I linked makes a persuasive point to the opposite, they seem to be tax accountants specialising in property, would you say they are wrong?

              Main bits from the article

              OK – so are arrangement fees tax deductible or not?


              Arrangement fees are fully tax-deductible against rental profits – finance fees are NOT capital costs. This is the case for any business, not just landlords, for example recently Manchester United re-financed a £500m loan and paid an £8m arrangement fee – the tax treatment is the same for them as for you! For the tax boffins, HMRC even (for the avoidance of doubt) refer to this in their ‘Property Income Manual’, section PIM2066, and the relevant legislation is the Income and Corporation Taxes Act 1988 Section 77, and ‘Income Tax (Trading and Other Income) Act 2005 section 272.

              Finance fees are almost always added to the loan by landlords (though they can be paid upfront – not good for cashflow!). It makes no difference to the tax deductibility of the finance fee expense whether the fee is paid or added to the loan, as the tax deduction is allowed when the expense is incurred, NOT paid. You know that the expense has been incurred because the lender won’t give you a refund and charges you interest on the fee! This is the same principle as paying an expense by credit card (i.e. deferring the actual payment of the expense) – the tax deduction is allowed when the expense is incurred.


              But my accountant told me that I have to spread the cost of the arrangement fee over the length of the mortgage … is that right?


              No! Your accountant might need a lesson in basic ‘GAAP’ … accountant-speak for ‘Generally Accepted Accounting Practice. Profits of a business – any business, including a property rental business – must be calculated using GAAP. This isn’t optional, however, for a small property rental business the FRSSE (Financial Reporting Standard for Smaller Entities) should also be applied.

              The FRSSE states, at paragraph 12.4:

              “Where an arrangement fee is such as to represent a significant additional cost of finance when compared with the interest payable over the life of the instrument, the treatment set out in paragraph 12.2 [similar to FRS 4] shall be followed. Where this is not the case it shall be charged in the profit and loss account immediately it is incurred.”

              In the circumstances of a typical Buy to Let mortgage, an arrangement fee is not ‘significant’ compared to the interest payable over the life of the mortgage. Therefore, the correct accounting treatment under FRSSE for arrangement fee is to include the fee in the rental accounts when incurred, and in full.

              Have HMRC actually agreed this?


              We recently (2015) successfully defended a client against a HMRC investigation regarding the immediate tax deductibility of £60,000 of arrangement fees in a single tax year. We literally had to explain the points made in this article to the HMRC Officer dealing with the investigation – who of course had no choice to but to agree with us!

              This is not just a case of professional ‘one-upmanship’ – there is a serious point to be made … HMRC are there to be challenged – politely, yet robustly! – as we often find that the technical competence of the HMRC Officer dealing with an investigation isn’t at a level we might expect …

              Comment


                #8
                I have read the article from the accountants which was written in 2015!! , the basis of their argument is that the fee can be claimed as one amount irrespective of whether it is paid or added however as I have already stated you cannot therefore claim the amortised element of the interest charged in each of the successive years given that you have already taken advantage of any tax benefit. The article has to be read and then re-Read to gauge xactly what is being implied.

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                  #9
                  Will these fees be included in the reduction to 75% in this tax year?

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                    #10
                    Sorry for asking but can you please elaborate on “ reduction to 75% in this tax year”

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                      #11
                      What I mean is aren't all finance costs included in the new reduced allowance. In other words can you not only claim 75% of them as an expense.

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                        #12
                        this thread seems to agree with you, stil doesn't mention if they can be claimed if added to the loan

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                          #13
                          https://forums.landlordzone.co.uk/fo...-2018-tax-year

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                            #14
                            I will speak with a London Tax accountant tomorrow to finally nail the issue. Read the response later tomorrow.

                            Comment


                              #15
                              Many thanks LA

                              Comment

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