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  1. #1
    Join Date
    Aug 2012
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    London
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    Default Tax deductibility of particular financing costs

    I paid a re-mortgage valuation fee in mid-March, but the re-mortgage didn't complete until the end of April. Should that mortgage valuation fee be deducted against the earlier or later tax year? (I am aware that it should ideally be amortised against the life of the loan but HMRC is prepared to accept a single one-off deduction provided that the fee is relatively small compared to the loan interest payable).

    Also, an old chestnut, which is fees on aborted purchases. Two questions here:
    • I understand that the conservative view is that capital expenses (e.g. survey fees, legal searches) are not tax deductible against anything whatsoever (which has always seemed unfair). However, I have heard that there is a more liberal view (with which I am well aware HMRC may not readily agree, but which could still be argued in good faith in case of their challenge) that such nugatory expenditure is within the normal day-to-day life of running a property business, and as such it can simply be deducted as a revenue expense. What is the prevailing view on this at the moment?
    • Whatever the answer is to the above, is there a difference for revenue expenses (e.g. mortgage valuation fees)? As these would as a matter of course be revenue expenses if the purchase had gone ahead, I'm instinctively much more comfortable deducting these against revenue, but I'd appreciate any thoughts.


    Very grateful for any help.

  2. #2
    Join Date
    Feb 2014
    Location
    Midlands
    Posts
    12,328

    Default

    To be honest, you can probably claim it in either tax year - as long as the result doesn't distort your tax position.
    Strictly speaking if you do returns on a cash basis, which you're not meant to but most landlords do, it's last year, on an accruals basis it should be amortised, but is more likely this tax year.

    The prevailing view is that expenses incurred against aborted purchases are not allowed, and there isn't really anything that counters that.
    If you genuinely hold the view that an expense wasn't actually tied to the abortive purchase and was an expense solely and exclusively for the business you can claim on that basis.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

  3. #3
    Join Date
    Aug 2012
    Location
    London
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    391

    Default

    jpkeates,

    Thank you for your thoughts. One additional question on this bit:

    Quote Originally Posted by jpkeates View Post
    The prevailing view is that expenses incurred against aborted purchases are not allowed, and there isn't really anything that counters that. If you genuinely hold the view that an expense wasn't actually tied to the abortive purchase and was an expense solely and exclusively for the business you can claim on that basis.
    Is there any difference in your mind between costs which are revenue in nature and those which are capital in nature? I can get my head around not being allowed to deduct capital costs against income (as these would, had the transaction gone ahead, have eventually been deducted against CGT, not income tax), but not being permitted to deduct revenue costs seems odd.

  4. #4
    Join Date
    Aug 2008
    Posts
    5,301

    Default

    Revenue expenses must be incurred on the properties which you own and receive rental income. You cannot claim "costs" incurred on properties not owned by you as an expense against your BTL property income.

    You cannot claim "repairs cost" or "redecoration cost" incurred in your own home as expense against your BTL property income.

  5. #5
    Join Date
    Feb 2014
    Location
    Midlands
    Posts
    12,328

    Default

    Quote Originally Posted by JamesHopeful View Post
    Is there any difference in your mind between costs which are revenue in nature and those which are capital in nature? I can get my head around not being allowed to deduct capital costs against income (as these would, had the transaction gone ahead, have eventually been deducted against CGT, not income tax), but not being permitted to deduct revenue costs seems odd.
    Not really.

    I've known people claim business milage for looking at properties that they didn't own or purchase, because those journeys were only made because they were a business necessity.
    But they're small amounts of money (and the fact they weren't challenged doesn't fill me with much confidence that they're actually valid - although on a common sense basis they might be allowable, because a trip for a meeting with your agent is allowable).
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

  6. #6
    Join Date
    Aug 2012
    Location
    London
    Posts
    391

    Default

    Thanks again for your help.

    As I said, I do completely get why it would be really pushing it to deduct abortive capital-type expenses as revenue. On the revenue point, however, I've dug a bit deeper on the internet and I've found a source which (with reference to legislation and HMRC sources) seems to sugges it's OK. Am I missing something? See below:

    An online response to a similar question says

    Regarding finance costs ... [f]or non-corporate taxpayers, relief for [abortive transaction] costs should be allowed under ITTOIA 2005, s 58(3). HMRC’s Business Income Manual at BIM45801 confirms that such relief extends to property businesses.
    I then looked up s.58(3) ITTOIA 2005 which says:

    (3)Expenses incurred wholly and exclusively for the purpose of—

    (a)obtaining finance, or

    (b)providing security for it,

    are incidental costs of obtaining the finance even if it is not in fact obtained.
    I've also looked at BIM45801 which says:

    Relief is not withheld if the expenditure is, in the event, abortive.

    The legislation allowing a deduction in computing trade profits is also applied to the profits of a property business - see BIM00570.
    This seems to quite clearly state that abortive transaction finance costs can be deducted against revenue. So, am I missing something?

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