Self assessment mortgage arrangement fees

greenbean22

I currently let a property which until recently has been free of mortage. I have recently taken out a buy to let mortgage on the property, and have used the funds to buy my own residential property.

Am I allowed to claim the costs of arranging this mortgage, bearing it mind it was to fund the new (residential) property?

AIFOP

This link may be useful?

http://aaatax.co.uk/bank-loan-fees

00ec25

AIFOP wrote: »

This link may be useful?

http://aaatax.co.uk/bank-loan-fees

that does not answer the OP's question

the killer test is what is the purpose of the extra borrowing?

the answer (and I suspect the OP already knows this) is that the extra borrowing was to fund a residential property, therefore it is not related to the rental business and is not allowable against the BTL

MarkyMarkD

I don't believe that is correct.

Effectively the OP's rental business, and themselves as an individual, are separate entities for this purpose.

When the OP's rental business bought the property, to let it, the OP lent the OP's rental business the full purchase price (I assume). Because the OP hadn't borrowed that money, there was no interest charge to recharge to the rental business and nothing to offset against tax.

But if the OP chooses to refinance the rental business by replacing his original (free) loan with a new (paid for) loan, that's fine. Up to the original purchase price of the property. (Anything above that and it clearly isn't for the rental business).

So if half the new borrowing is equal to the original purchase price of the rental property, half of the interest and arrangement fees are allowable.

In my opinion.

chrismac1

There is a BIM somewhere which confirms the last thread, I will see if I can find it.

chrismac1

BIM 45700 example 2 is one example, I once found a better one but can't find it now.

antrobus

I think the answer depends on when the BTL property was first acquired or transferred to the rental business and what it was worth at that time. There are circumstances in which borrowing against a BTL property to fund something else would be allowable.

chrismac1

Having read the original post again, strictly this is not allowable as the purpose is to buy a residential property. Normally this works the other way around, where someone is financing a BTL by remortgageing their residential home where they can borrow more cheaply. So it is the purpose of the loan that is key and here that purpose is personal.

MarkyMarkD

I think it's allowable, because the OP has introduced savings into the BTL business, then effectively withdrawn the savings and replace them with the borrowed money.

It is very clear that if the rental business didn't exist, the OP wouldn't have needed to borrow as much. So, the amount of borrowing equal to the original purchase price of the rental property - the amount which was originally funded by savings - is a cost of funding the rental business and hence allowable.

This section of the HMRC guidance might be useful: http://www.hmrc.gov.uk/manuals/bimmanual/bim45730.htm (or might not!).

greenbean22

Thank you all for v helpful replies. Now I'm confused as I thought the mortgage interest on a buy to let property was always claimable, no matter what the reason for it being taken out.

I inherited the btl property many years ago,
mortgage free. I have remortgaged recently with an interest only
mortgage to fund the purchase of the residential property...

chrismac1

To conclude this is a grey area and some aspects of the HMRC BIMs appear to contradict themsleves. Not unusual. This is an opportunity and a no-brainer in practice. Claim the interest and document the BIMs and other evidence which support your case. Given that the mortgage is against the property in question, only a super-diligent HMRC inspector is likely to challenge this. By comparison, where clients own a BTL but the mortgage is not on that property, we are ready for a challenge as it is clearly easier to see that the two don't match up one for one.