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Rental Property – early redemption charge on mortgage

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Rental property sold, and a redemption penalty of £1,400 is charged by mortgage company for early settlement of the mortgage. Can this be deducted from either rental income or as part of the CGT calcs ?
David

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By GrahamASA
20th Sep 2007 11:11

It Depends...
David,

It depends on the the way mortgage finance forms part of the fiscal structure.

If mortgages are raised as part of the enterprise/individuals normal business activites, then the redemption cost will be deductible as a current expense. For example: you may have a mortgage with Bank XYZ and you change the mortgage to Bank DEF to lower the interest rate, then all the costs of the new mortgage will be of a current nature.

In a recent enquiry with HMRC, our client had 40 B2L's and we claimed the mortgage redemption costs and mortgage broker fees as current expenditure. We argued that they were costs incurred in the normal business activities of the enterprise, formed part of cost of financing the income generating assets and were not costs that related to new acquisitions, therefore should be deductible as current expenses. We considered them the same as arranging an overdraft, for example, where the bank charge for arranging an overdraft is deductible.

We won and our client was allowed the deductions.

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By NeilW
20th Sep 2007 12:05

I agree
Financing is not linked to the assets other than by way of charge. You can operate the financing entirely independently of the assets, so I don't see how it can be argued that it is a capital cost.

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