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In this week’s Q&A post, we answer your questions on how to save the most tax when re-mortgaging your properties. These questions cover real-life scenarios that require advice on when certain tax reliefs apply, and what capital gains tax is applicable to re-mortgaging.
These property questions and answers have been shared with us from Arthur Weller’s ‘247 Property Tax Questions Answered’.
Can I Claim My Costs For Re-Mortgaging?
Question:
I have heard that mortgage broker and mortgage lender fees are of a revenue nature and valuation costs are of a capital nature. Is this also true if an investment property is re-mortgaged? I am about to re-mortgage an investment property with a different lender and will incur these costs again, but am unsure if I can claim relief against them.
Answer:
The answer is that it depends on the status of the interest on the loan. If the interest on the loan is an allowable expense, the cost of obtaining the loan is also an allowable expense. So, in this particular instance, because the loan that is being re-mortgaged is for the purpose of the property then once again the costs can be offset. See HMRC Business Income Manual page BIM45815 (no.8 in the list).
Again, the mortgage broker and mortgage lender fees will be claimed against your rental income, and the valuation costs will be claimed once you decide to sell the property.
Case Study:
John has a buy-to-let mortgage with an outstanding amount of £50,000. He is currently repaying £450 per calendar month back to the bank. However, he realizes that another lender has a special reduced interest rate, so if he re-mortgages with them his monthly rate will be reduced to £400.
He re-mortgages the property and incurs costs as follows:
Mortgage broker fees – £250
Mortgage lender fees – £200
Survey costs – £200
This means he can offset £450 against his annual rental income and can claim the survey costs when he decides to sell the property.
What Is The Tax Position On Fees For Re-mortgages?
Question:
I am re-mortgaging one of my buy-to-let properties, which incurs fees for the lender and the conveyancer. Are they in any way tax deductible?
Answer:
You are re-mortgaging one of your buy to let properties, which incurs fees. I think you mean to say, this incurs fees for the borrower. If you look on page PIM2066 in the Property Income Manual on HMRC website you can see that incidental costs incurred in obtaining loan finance, like arrangement fees, are allowable. So, if the loan is allowable, which I presume it is, the fees incurred in setting up the loan are also allowable.
How is Capital Gains Tax Calculated- from Purchase or Re-Mortgage Date?
Question:
I purchased a house in 2002, which I lived in until 2006. I then re-mortgaged to a buy-to-let and rented out the property. Is the capital gains tax (CGT) worked out from the original purchase date and with the original purchase amount, or from when the property was re-mortgaged to buy-to-let?
Answer:
The CGT is worked out from the original purchase date and with the original purchase amount. The re-mortgage is irrelevant for CGT purposes.
For more tax advice and guidance, read Arthur Weller’s full book ‘247 Property Tax Questions Answered’ – available in the Landlords’ Tax Pack.
