Are legal fees of re-mortgaging tax-deductible?

[Funkster1973]

Hello, first thread so go easy on me.

I have recently transferred my two (let) properties from sole ownership in my name, to beneficial joint tenants to include my wife.

One of the mortgage companys just added the new name (well done nationwide), where the other made us start an entire new mortgage application ( Thanks C&G for making life more complicated than it needs to be).

Can I claim the solicitors fees and any mortgage company fees incurred in the process as tax deductable under the catagory of 'arranging finance'?

[Disillusioned]

Hi,
I would check with inland revenue.They should be able to advise you.Failing that Citizens Advice is usually quite good. Sorry i can't be of more help,I've never had to do this.If you're doing this for eventual Succession purposes, be careful.i would take professional advice as there is a process that is legally followed. The spouse is usually only entitled to one of the property ie main dwelling etc, however as far as i know she could choose between the main and say a holiday home for example. It's complex. I don't know where you would stand with Capital Gains etc if your wife essentially becomes involved in the business. With regards to tax, you could gift property as far as I am aware, however, if you die within 7 years, it's taxable. Please also note the tips I am giving you are based on Scots Law.

I don't know if any of this helps you,

Kind Regards,

Angela

[TaxationPete]

I hope you realize that you now have to report the rental income to HMRC individually on a 50/50 basis. ( joint ownership ) Complete Form 17 and send it to HMRC. This could have been done via a Declaration of Trust defining the Beneficial Ownership of the property. Ether way this would be deemed an interspousal transfer on a no gain, no loss basis with no IHT or CGT implications but depending in the size of the mortgages there may be an SDLT implication. HMRC will not give adcive they are not FA's or IFA's they may however refer you to legislation. Regards Peter

[Telometer]

You can claim a deduction for those fees over the life of the loan. So if fees were £200, and the loan for 20 years, claim a £10 deduction for each of the next 20 years.

[Ben Tayo]

I believe that the costs of remortgaging are allowable see HMRC website BIM45815

[Telometer]

Indeed they are allowable, but only in the way I describe.

[nearlybutnotquiteright]

You can claim a deduction for those fees over the life of the loan. So if fees were £200, and the loan for 20 years, claim a £10 deduction for each of the next 20 years.

Although the tax treatment of an item normally follows the accounting treatment, and for accounting purposes you would write off some items over their useful life, there is also the principle of materiality. In this case the £200 would be deemed immaterial and thus the whole of the cost would be written off in the year that it is incurred.
Good try though!

[Telometer]

There is no concept of materiality for HMRC, ever. There is certainly a threshold under which they will not investigate, but if you're already under inquiry and the Inspector picks up on this, with the new penalties regime, every extra £95 of tax (your £190 example, at 50% tax rate) could mean an extra £95 of penalties too.

In any event, this is an example to illustrate the point for OP, and as it is more likely that the fees are £2,000, the sum is definitely not immaterial.

Good try though, but you cannot just guess at tax, it often does not follow what you might imagine is common sense.

[nearlybutnotquiteright]

You are half right again. Whilst there is no concept of materiality for HMRC, accounts are accepted if prepared in accordance with GAAP. This means that materiality IS relevant.
You will note that accountants disagree with your "analysis" if you look on the site accountingweb and search Mortgage Fees for BTL - allowable.
I cannot post links because of my post count, but if you type in the mortgage fees for btl on anyanswers, it will come up.
It was actually whilst browsing this site that I came accross your attempts at applying your knowledge.
You are doing well however. Nearly right, but you will have to think a bit before you start typing.

[nearlybutnotquiteright]

Trying to get my post count up so that I can post links for you.

[nearlybutnotquiteright]

Trying again so I can post links.

[nearlybutnotquiteright]

Sorry, I cannot post this link.
I will instead try to type it.
www.accountingweb.co.uk/anyanswers/mortgage-fees-btl-allowable

[Telometer]

Thank you. I am glad to see that the link agrees with me.

What is it that you are trying to prove?

[Telometer]

Here is HMRC's take on materiality in self assessment returns http://www.hmrc.gov.uk/manuals/bimmanual/BIM31047.htm

In the completion of SA returns, pence not included, income and gains rounded down to the nearest pound and tax credits and deductions rounded up.

I am sure you will agree that £200 is considerably more than just rounding up the pennies.