We have a client who is trying to claim a mortgage fee on a re-mortgage as a rental expense on a property that was previously his private residence but is now being wholly rented out. The client has no intention to return to this property for the life of ownership.
The re-mortgage was taken out at the same time the property was let out.
If this was a buy to let then it could be safely argued that this was wholly a business expense, but as the property was previously his private residence I'm not so sure. my think so far is that this is a capital expense. All that I can find from HMRC keeps refering to buy to let properites and I can't find any advice on non buy to lets.
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Assuming the purpose of the borrowing (the reason for the mortgage fee) was to finance for letting of the property. It would be a capital expense. Mortgage fee would not be a normal expenditure.
Arrangement fees are accepted as tax allowable by HMRC as an "incidental cost of finance" and it follows that if the interest is allowable then so is the arrangement fee.
Assuming the purpose of the borrowing (the reason for the mortgage fee) was to finance for letting of the property. It would be a capital expense. Mortgage fee would not be a normal expenditure.
Well that's a bit wrong mate.
Sorry I should also have said.
If the money is for any other purpose HMRC would not allow the fee as a business expense.
No - what you should have said is that provided the mortgage fee was incurred for the purpose of raising finance for a letting business then it is allowable as a revenue deduction.
PIM2066 is your friend.
I don't normally allow the arrangement fee for the first mortgage/on acquisition, as that is capital - but do allow the fee on remortgages. I remember researching it quite a few years ago and the above is what I came up with.
Actually BIM45800 onwards is your friend, and you can claim the incidental costs of obtaining all finance, to the extent that the finance itself is raised for the purposes of the business. That includes costs of obtaining finance for an original purchase.
Actually, PIM2066 is indeed very helpful. Why anyone would think that it doesn't apply to a first mortgage is beyond me.