If a property is mortgage-free and then remortgaged for loan, should the mortgage fee (product fee) be capitalised?
Arthur Weller replies:
See HMRC’s Capital Gains manual, where it states: “Costs of arranging a mortgage: Fees of building societies, solicitors and valuers and any other costs of arranging a mortgage or other loan in connection with the acquisition of an asset should not be treated as allowable expenditure (for capital gains tax purposes).” Furthermore, in HMRC’s Property Income manual it states: “incidental costs incurred in obtaining loan finance for a rental business are generally deductible in computing rental business profits provided they relate wholly and exclusively to property let out on a commercial basis. These costs include loan fees, commissions, guarantee fees and fees in connection with the security of a loan.” So, you can see that with regard to tax, the mortgage fee is not capitalised.