Singing Pig

My accountant told me that since mortgage Arrangement fees are added to the loans , I cannot claim them as expenditure against my rental income - they would be claimed in future as a capital expense . On loans of around £100k , arrangement fees are generally of the order of 1-2% every 2-3 years , hence can be around £1k per year per property which is significant when compared to the annual rental of £7k. How does everyone else treat arrangment fees ? I'm considering actually paying the fees up front instead of adding them on to the mortgage , so they may be offset against rental income - Appreciate any thoughts ,

 

Thanks ,

Sean

 

Hmm, that’s not quite right. Its not the fact something is added to the loan that makes is capital or income, its the nature of it that counts. I think you may have misunderstood what they where trying to say. (I am of course assuming they know what they are on about!)

Remortgage costs are generally expensed, strictly speaking spread over the lifetime of the loan but given most recent portfolios I deal with are underwater this doesn’t make any practical difference.

The initial mortgage costs are a little more tricky. Some accountants will argue that they can be expensed over the lifetime of the mortgage, some will argue that it is a cost of purchase and so taken into account on CGT and some even state that is is a "tax nothing". ie you cant do either.  There is certainly support for expensing in the legislation. In general practice the CGT route is often more beneficial and seems to be widely used although the legislation has to be interpreted quite broadly for this to be allowable.  HMRC seem to be less concerned about that than us accountants!

 Hope that helps
 

 

I agree with James Smith.

Revenue expense is usually the correct treatment - but, as he says, with most people nursing rental Losses, CGT treatment might be advantageous.

I consider mortgage arrangement fees to be an expense item as they are part of the ongoing business of property investment.

 

If I have a mortgage coming out of a tie-in period and the rates have moved in my favour, i.e. DOWN then I remortgage and offset the expenses involved in arranging the remortgage against rental income. I include legal fees, packager fees, mortgage advance fees etc.

Note that I do NOT include legal fees when buying the property in the first place! This is a capital item.

Great - so we have two conflicting views ! I would definitely prefer to write them off as an expense against rental income - that way I dont have to keep track of them forever - It might be the case that i never sell .. My accountant is adamant that because i never actually paid them , ie they went straight against the loan , that we we must just keep track of them and set them against capital gains upon sale . I am doubly against this because what if the accountant at that time disagrees and takes the alternative view that they should have been expensed . I'd rather expense them in the same time frame that they occur .

 

Anyway , appreciate the different views - it does seem to be a bit of a grey area .

 

Thanks,

 

Sean

 

 

Sean,

There is no grey area about things being added to a loan being potentially expensed. That is just plain ignorance and actually shows a worrying lack of basic understanding if this is what they suggested to you. Whether the correct treatment is to expesnes/apportion/use for CGT is however a matter of debate.

As an aside do check your "accountant"s qualifications. Anyone can actually claim to be an "accountant" without any formal qualification at all as its not a protected term. Those who call themselves "chartered" will be a member of the ICAEW or ACCA and can be verified as actually having passed some exams and had at least 5 years practical "on the job" training before being let loose on the public. Its no unknown for bookkeepers who dabble in a bit of self assessment to become "accountants" by virtue of some new headed paper! Its like the nurse deciding to become a surgeon. That said there are some very competent "non qualifieds" out there and some qualified accountants don't have a clue!

Regards,

IMHO, mortgage arrangement fees are a P&L item (allowable as an "incidental cost of finance") and have nothing to do with CGT.

If the loan itself is not relevant for CGT, I fail to see how arranging it can be a CGT expense.

I would also agree that this is an expense, not capex.

 There are some interesting arguments hapenning on other sites about broker fees too ... it seems that expenditure occurring at the point of purchase confuses people.

 I would add at this point that I am not a chartered accountant, I do my own books for my Ltd and self assessment for us and sundry friends and family.  I'm in the final year of my AAT, looking to then move onto tax specialist and deal mainly with property investment and IT contractors...  so there will be guys on here with a lot more experience than I have :)