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Product fees on purchase and sale of an HMO prop

Loan, product, broker and redemption fees incurred on an HMRC property for CGT

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Client purchased one HMO incurring bank loan and broker product fees.  Are these allowable against CGT?  Client is now in the process of selling and once again is incurring broker product and bank redemption fees.  Are these costs again allowable against CGT?

Scenario: This was the client's first foray into property investment of any type and the fee costs at purchase were incurred before they began the business of trading as property investors.

The property is being sold to an investor who will continue the business of HMO owner.

 

 

Replies (12)

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By David Ex
21st Jan 2022 16:17

davidbarry wrote:

Client purchased one HMO incurring bank loan and broker product fees.  Are these allowable against CGT?  

No, of course not.

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Replying to David Ex:
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By jwgrogan
21st Jan 2022 16:28

David Ex wrote:

davidbarry wrote:

Client purchased one HMO incurring bank loan and broker product fees.  Are these allowable against CGT?  

No, of course not.

...because they're allowable against rental income.

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Replying to jwgrogan:
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By David Ex
21st Jan 2022 16:43

jwgrogan wrote:

...because they're allowable against rental income.

Thought did occur but thought better than to point that out ….

(And, of course, because the loan costs have nothing to do with the asset for CGT.)

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Replying to jwgrogan:
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By aland
24th Jan 2022 21:46

Are they allowable against rental income if they are loan set up fees as opposed to ongoing interest? Would they not then fall into the same category as estate agent fees?

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Replying to aland:
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By Wanderer
25th Jan 2022 01:31

Have you read S38?

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Replying to Wanderer:
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By Tax Dragon
25th Jan 2022 01:49

What has s38 to do with income tax?

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Replying to Tax Dragon:
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By Wanderer
25th Jan 2022 01:55

aland wrote:

Would they not then fall into the same category as estate agent fees?

S38 tells us what 'category' estate agent fees fall into.
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Replying to Wanderer:
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By Tax Dragon
25th Jan 2022 02:30

But s39 tells you (if it wasn't already obvious) that that has no income tax effect.

I think aland's point was that initial fees are often capital (irrespective of whether they are within s38). To address that point, we should be looking at ITTOIA, not TCGA. Is s58 relevant to property income?* Definitely need to consider s272B.

*Yes. See s272 and s272ZA.

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Replying to Tax Dragon:
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By Wanderer
25th Jan 2022 03:00

I'm not sure we are differing?
S58 ITTOIA confirms the treatment of Incidental costs of obtaining finance.
S38 TCGA confirms the treatment of Acquisition and disposal costs etc.
Both of which IMHO confirms "they (do) not then fall into the same category" as each other.

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Replying to Wanderer:
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By Tax Dragon
25th Jan 2022 03:27

Estate agent fees are a cost of acquiring the property; broker fees etc are a cost of financing the acquisition. Different 'categories'.

Both are probably capital costs - aland's point (I think), and he's probably right - but that doesn't mean their treatment is the same.

One comes into s38; one into s58. (No, we don't differ.) [In OP's case, you have the additional complication of commencement and (assumed) cessation (notwithstanding Steve K's argument about that). That's the question he probably should have asked.]

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By Wanderer
21st Jan 2022 17:30

Why would you think such finance costs fall within S38 TCGA 1992?

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Replying to Wanderer:
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By Tax Dragon
25th Jan 2022 02:30

For CGT, this is indeed the key question.

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