Mortgage Arrangement Fee / Valuation Fee Tax Deductible

[luckyman28]

Hello one and all,

I have recently started renting a property out and am just doing my 08/09 tax return.

I'd be really grateful if someone can tell me if the following items are tax deductible:

Valuation Fee: Paid as a cheque to the Building Society I have my buy to let mortgage with (and they then paid the valuaton company).

Mortgage Arrangement Fee: Added to my interest only buy to let mortgage which I will now be claiming the monthly payment of as a tax deductible expense.

Legal Fees: I have been advised that legal fees on the acquisition of the property are not tax deductible and I can understand why (as it is a capital purchase). However what about legal fees on the remortgage of a property? Surely this IS tax deductable as it is not capital and is an operating cost to my property business.


If anyone can help me I would be really really grateful.

Thanks

F

[Telometer]

Fees in respect of arranging loan finance are deductible over the life of the loan.

So, capitalise them, and amortise them over the life of the loan.

e.g. A £250 cost, with a 25 year mortgage, and a 3 year fixed term. The mortgage life is 25 years, so you get a tax deduction for £10 for each of 25 years; the 3 year fixed term period is irrelevant.

After year 5, you remortgage and incur a further £500 on a ten year mortgage. AT this point you write off - i.e. get a tax deduction for - the remaining £200 fees on the first mortgage. And then claim £50 per annum on the new, ten year, mortgage.

[Telometer]

In response to a PM


Hi Telometer,

Thanks for your reply. Its a great help. Would the same thing be true of valution fees and legal fees in relation to the mortgage? Do I have to capitalise these and only deduct them over the life of the mortgage? Or can I deduct them on this years tax return?

Fran


Thought I'd answered that:


Fees in respect of arranging loan finance are deductible over the life of the loan.

So, capitalise them, and amortise them over the life of the loan.

[Telometer]

Complete nonsense, Lilibeth - and irrelevant to the question.

For trading or property income purposes, an expense has to be wholly & exclusively for the purposes of the business.

For employment purposes, an expense has to be wholly, exclusively AND NECESSARILY for the purposes of the employment. Very few expenses qualify thus.

[jeffrey]

Complete nonsense, Lilibeth - and irrelevant to the question.

For trading or property income purposes, an expense has to be wholly & exclusively for the purposes of the business.

For employment purposes, an expense has to be wholly, exclusively AND NECESSARILY for the purposes of the employment. Very few expenses qualify thus.
I think that she may be from another jurisdiction: possibly USA?

[luckyman28]

I've got 2 more questions Telometer and if you could answer these you will be my hero and I will hopefully be fully conversant with how to account for my property and I will leave you alone forever (and be able to pass on your wisdom to educate a few other people too).

1. If for example I remortgage in December on a 25 year mortgage and the arrangement fee is £250 do I depreciate £10 for that financial year or do I do it on a monthly basis (i.e. £10/12*4)?

2. I have a friend who has 12 properties so I also asked him how he accounts for things. He basically told me he puts everything through as a deduction (i.e. all legal fees, mortgage arrangement fees, valuation fees, etc). Weirdly he pays an accountant to do his tax return and his accountant apparently allows him to deduct these on the basis they are costs he has incurred wholly for his business. Am I right in thinking he should fire his accountant as this is definitely wrong? And he's just been lucky in so much as the Inland Revenue have never investigated this?

[David Lawrenson]

We wrote a long piece on this summarising what we think is the current position. It seems it is still something of a grey area.
http://www.lettingfocus.com/blogs/index.php/2010/12/mortgage-arrangement-fees-the-hmrc-and-tax/
David Lawrenson
www.LettingFocus.com
Topic Expert

[Telometer]

Posting spam - particularly when it is incorrect - is not appreciated. This is not a grey area, tax law is very clear on this point.