Reclaining Costs on Properties that Fell Though

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    Reclaining Costs on Properties that Fell Though

    Hiya,

    I have one BTL.

    I have been looking for a second BTL property and made offers on two properties - I had to back out of buying these properties as the survey reports showed subsidence. In the meantime I had incurred costs (survey fees, mortgage application fees, solicitor's fees etc).

    My question is, can I offset the losses on the two properties I didn't buy against the rental income of my BTL property?

    Any advice would be much appreciated.

    #2
    I don't think you can, if you were property developing then yes, but as a property investor I don't think the same rules apply. though if someone can tell us otherwise and point out the process, then hey, I am up for it aswell LOL

    Comment


      #3
      These costs are not allowable.

      The basis for this is that they would have been capital allowances had the purchase gone ahead and cannot become operating costs when it fails.
      This has always seemed totally unfair to me, but it is the case, nonetheless.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

      Comment


        #4
        Abortive capital costs are not allowable, as there is no asset against which to deduct such costs.

        It could different for a company which can claim excess management expenses.

        Comment


          #5
          I have often wondered whether there could be a tenable argument that these costs could be considered capital costs against whatever property is, eventually, purchased in place of the aborted transaction, on the grounds that these costs were all incurred as part of the journey that led to purchasing that property.

          Comment


            #6
            JamesHopeful,

            I don't think so, IMHO.

            The relevant legislation, for an individual, is section 38 TCGA 1992, which is very restrictive. The costs have to be "wholly & exclusively" for the acquisition of the asset. Abortive costs on another (potential) asset would not seem to qualify.

            Comment


              #7
              I guess the question is what "the asset" is? Is it "the property of 123 Evergreen Terrace" or is it "a(ny) buy to let property I managed to get"?

              Comment


                #8
                I've just had another think about this.

                As explained by jpkeates and King Maker, it seems clear that the capital costs (such as solicitor's fees) on abortive transactions will never be tax deductible against anything for the simple reason that there is no asset for them to attach to. This seems unfair but it seems that the law is clear.

                However, a mortgage valuation fee and a mortgage application fee are revenue costs, not capital costs. As such, surely these revenue costs on abortive transactions can simply be deducted against your income just like you'd deduct any other revenue cost related to your property letting business?

                Comment


                  #9
                  A mortgage valuation and application fees are revenue costs if they relate to a remortgage of an existing property.
                  I would think that they are arguably capital costs if they are associated with the acquisition of a new property.

                  However, it's an interesting point and a reasonable approach.
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    IMHO, mortgage fees and application fees can be treated as "incidental costs of finance" and therefore revenue deductions (whether the mortgage proceeds or not).

                    Comment


                      #11
                      Thanks both. I'll treat these as revenue.

                      Originally posted by jpkeates View Post
                      A mortgage valuation and application fees are revenue costs if they relate to a remortgage of an existing property.
                      I would think that they are arguably capital costs if they are associated with the acquisition of a new property.
                      An interesting thought, but it seems that there is sufficient logic to the idea of treating them as revenue for it to be a tenable decision. My layman's understanding is that capital costs are expenses which are intrinsic to acquiring the property e.g. solicitors' fees, SDLT. Obtaining a mortgage does not seem intrinsic in the same way -- for example, I could have been a cash buyer and owned the property outright but instead I've chosen to run my lettings business in such a way that I use mortgages, which makes me feel that they are revenue expenses.

                      Comment


                        #12
                        I don't believe deductibility depends on whether it's a remortgage or new purchase - both are allowable.

                        Comment

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