BTL Self Assessment

mahdlo

just finishing of my SA for 2 BTL's.

mid way through the tax period we bought the second property.

can I deduct solicitors fees & mortgage arrangement fee?

silvercar

I thought they would be a CGT deduction when you come to sell rather than an allowable expense for income tax.

jimmo

The solicitor’s fees are usually directly related to the purchase of the property and are Capital expenditure. They are not allowable against your BTL income but are allowable in your Capital Gains computation when you sell.
Mortgage arrangement fees, on the other hand, are allowable against the BTL income (and not in the Capital Gains computation).
Look at item 7 here
http://www.hmrc.gov.uk/manuals/pimmanual/PIM2015.htm.
As an aside, I actually learned this about 3 months before I retired when a customer challenged my disallowance. None of my former colleagues were aware of it and none of us could see the logic. But then, as we used to say “What has logic got to do with taxation?”

mahdlo

i spoke to my tax office yesterday and they said Legal fees for buying were allowable under "Professional & Legal Fees"

???

dunstonh

Accountants and letting agents is against income tax as would solicitors fees in setting up a letting contract. Maybe that is what the tax office thought you meant by professional & legal fees. Legal fees in arranging a capital purchase would fall under capital gains though.

silvercar

That's one of the catagories on the SA.

I'm now really confused and glad I didn't click "submit" on my online return.

From Jimmo's link, PM2015:

Expenses connected with the premises or land that is let out will normally be allowed as a deduction unless the expense relates to a capital matter.

Surely purchasing the property is a capital matter?

This is reiterated on PM2205:

Generally, the fees are capital if they relate to a capital matter, such as the purchase of property.

and:

Other examples of non-allowable legal and professional expenses include:

legal costs incurred in acquiring, or adding to, a property,

So I would have thought, trying to be logical, that legal fees connected with setting up the tenancy agreement and writing contracts with letting agents would be the business expense and the legal fees on the property purchase would be "a capital matter".

mahdlo

reading that, the mortgage arrangement fee would also be a capital matter????

jimmo

The Capital / Revenue divide keeps lots of taxmen and lots of accountants in their jobs and realistically, we can only deal with it on a rather rough and ready basis here.
Legal fees for purchasing the property are part of the cost of purchasing the property. Capital
Legal fees for drawing up leases are an integral part of the ongoing administration of the lettings business. They may be expended each time you take on a new tenant. Revenue.
Mortgage arrangement fees are not actually spent on the property. They are part of the expense of borrowing money. Revenue.
As I said in my first post here this was something I only learned in the very latter part of my days as a taxman. I and all of my colleagues in my office had been getting it wrong.
The only logic I can see is that when you buy a property you acquire a capital asset. When you take out a mortgage that is certainly not a capital asset.
To be honest, I’m not exactly convinced that that makes sense but the link I put in my first post certainly says that mortgage arrangement fees are Revenue and allowable.