Brokers early redemption fees

brokers early redemption fees

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Client sold an HMO and redeemed a loan arranged by a broker.  The broker redemption fee was quite excessive. 

The consensus was that this fee was not allowable against CGT. 

Would though it be allowable again rental income in a final trading period and if so where should the expense be recorded?

Facts:

This was the clients’ only rental property.

 

The property was sold to an investor who continued the business of HMO owner.

My own research:

I have looked through the HMRC Property Income Manual and the HMRC Property Tool Kit.

I am also aware of PIM 2105, PIM 2010 and BIM 45800. 

This is a loss of interest to the lender but compensation for the loss of revenue to the broker when clawed back.

If allowable for tax  should I record the broker fee in the client’s tax return as interest deductible under ‘residential property finance costs’ and so limited to 20% tax relief and therefore NOT recorded as  part of legal, management and professional fees?

 Or am I wrong and the cost is in fact a direct property cost and so should be recorded as  part of legal, management and professional fees?

Replies (4)

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Ivor Windybottom
By Ivor Windybottom
06th Jan 2023 14:11

ITTOIA 2015 s272B Meaning of "costs of a dwelling-related loan"....

(5) "Costs", in relation to a dwelling-related loan, means--
(a) interest on the loan,
(b) an amount in connection with the loan that, for the person receiving or entitled to the amount, is a return in relation to the loan which is economically equivalent to interest, or
(c) incidental costs of obtaining finance by means of the loan.

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By davidbarry
06th Jan 2023 14:29

Thank you for your input.
However, what is your conclusion? Allowable for tax and if so under what category?
Thank you.
regards,

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By Andywho is fed up
06th Jan 2023 21:15

So, as Ivor has indicated, under which category do you think that the expenditure falls.

As I see it, and from the information you have provided, the broker is being compensated by the lender by a charge by the lender to the mortgageee on the redemption of the mortgage.

If so, how is this a cost of obtaining finance - or have I misconstrued something?

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Replying to Andywho is fed up:
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By rmillaree
07th Jan 2023 09:39

"As I see it, and from the information you have provided, the broker is being compensated by the lender by a charge by the lender to the mortgageee on the redemption of the mortgage."

I am presuming it is slightly different that the property owner is paying the broker excess fees - presumably related to lost income or fees they may have faced from finance provider? - perhaps it doesnt matter if we are both agreeing property owner is paying fee related to ending of finance (practicably speaking)

If my presumption is right (it could easily be wrong !) is it not simply an incidental cost of obtaining finance (c) in example above (if not (b) in example above - seems no different to early repayment fee on mortage which i am presuming we all agree is classified at "residential finance interest" claimable against

(c) incidental costs of obtaining finance by means of the loan.

I am presuming services provided by "broker" in question are only related to finance - ie they are not dealing with property sale.

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