Remortgage - restrictions on interest and fees

What is the correct basis to restrict interest and fees after remortgaging to release equity

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Client has a rental property. Last year, when their original mortgage interest rate offer ended and their repayments increased, they decided to release some equity by remortaging with a higher loan. The simplified figures are:

 

Old mortgage - £270,000

Early exit fees - £10,000

 

New mortgage - £340,000

Fees added to this - £5,000

 

I have a few questions on this:

1) Is the restriction on future interest payments 270/340 or should we be factoring in the fees involved? (I appreciate small differences, but would like to be correct)

2) Are the fees deductible or is there duality of purpose (given part of the purpose of the remortgage is to extract equity)? If so, can we apportion as above, since they would have remortgaged regardless to get a better rate? 

 

It seems this concept is harder to search for since mortgage interest restrictions were introduced more generally. Hoping the wise people on here will have some experience with this. 

 

Thanks in advance.

Replies (4)

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JCACE
By jcace
27th Jan 2024 18:28

What was the value of the property when first introduced into the rental business?

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Replying to jcace:
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By Davemaverick
27th Jan 2024 19:09

Not too sure. It was previously a private residence and was not valued when they moved out and started renting it. I would estimate £400k. Current value is £450k based on the remortgage paperwork (maybe slightly more now).

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Replying to David Ex:
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By Davemaverick
27th Jan 2024 23:22

Thanks! That helped me find the relevant manuals.

For anyone else having the same issue in the future - this manual makes it pretty clear. As long as the remortgage does not take the debt above the orignal capital value (and any other investment at cost), this would be fine.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

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