Allowable costs on purchase of second BTL property

by **Piglet1995** on Thu Aug 04, 2011 7:12 pm

Hi all,

I'm new to this forum so please forgive me if the question has been asked before. I've searched the board but not found an answer.

I have recently purchased a second property to be rented out. I have been led to believe that it is possible to set the purchase costs (solictors fees, mortgage application fee, survey, SDLT etc, but not the purchase price of the property itself) against the rental income. This applies to the second and subsequent properties but not the first. Does anyone know if this is the case please? A link to relavent item on the HRMC website would very much appreciated.

Thanks for any help.

Di.

by **Incredulum** on Fri Aug 05, 2011 5:21 pm

No it is not true. With one exception these are incidental costs of acquisition and are therefore included in your CGT computation when you eventually sell. The exception is the fees relating to the raising of mortgage financing which should be amortised over the life of the loan. (So if it costs £2,500 and is a 25 year mortgage, you get £100 deduction each year for 25 years.)

by **maths** on Fri Aug 05, 2011 5:59 pm

I'm not convinced that it would be incorrect for the incidental costs re financing to be deducted in the tax year of incurrance assuming this followed the treatment for accounts purposes?

by **Incredulum** on Mon Aug 08, 2011 9:53 am

maths wrote:I'm not convinced that it would be incorrect for the incidental costs re financing to be deducted in the tax year of incurrance assuming this followed the treatment for accounts purposes?

I cannot disasgree with that statement, tax follows the accounts. However, the accounts have to be prepared under GAAP.

I am not sure, however, of a method of applying such an accounting policy under GAAP, Maths, perhaps you are? Neither IFRS nor UK GAAP allow it so far as I am aware.

IAS 39 http://www.iasb.org/NR/rdonlyres/1D9CBD62-F0A8-4401-A90D-483C63800CAA/0/IAS39.pdf Page 3, a quarter of the way down makes reference to the "effective interest method".

by **maths** on Mon Aug 08, 2011 11:30 am

Thanks.

No. I'm not aware of any accounting policy permitting deduction in the year of incurrance of the costs; in this regard I bow to your superior knowledge.

I know this is an unacceptable statement, but i (and i know many others) have not to my knowledge ever had a problem in deducting such costs in the year of incurrance; this may be of course due to oversight on HMRC or an acceptance that the amounts involved do not need to be amortised.

However, I completely take your point that they should be so amortised.