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Where Taxpayers and Advisers Meet

Deducting mortgage arrangement fee

Hedgie
Posts: 16
Joined: Wed May 06, 2009 1:38 pm

Deducting mortgage arrangement fee

Postby Hedgie » Sun Jan 21, 2018 8:27 am

I recently remortgaged a BTL. The mortgage arrangement fee was added to the loan
My accountant told me that I have to spread the amount of that fee across the loan period so that I can only deduct in each year the appropriate fraction. Whereas if I had paid the fee myself I could deduct the whole fee for the year in question.
I can't find anything in the HMRC manual about this. Is my accountant correct please? Can anyone give me any pointers? Thanks

bd6759
Posts: 3312
Joined: Sat Feb 01, 2014 3:26 pm

Re: Deducting mortgage arrangement fee

Postby bd6759 » Sun Jan 21, 2018 1:28 pm

First and foremost the accounts need to be prepared using acceptable accounting standards. Once you have this, the profits are adjsuted to comply with tax rules.

There are no specific tax rules that apply to mortgage arrangement fees, so the tax treatment follows the accounting treatment.

Your accountant, being an accountant, understands the accounting principles set out it the appropriate financial reporting standards (FRS102). Why do you doubt him?

sandy2000
Posts: 38
Joined: Wed Aug 06, 2008 3:33 pm

Re: Deducting mortgage arrangement fee

Postby sandy2000 » Thu Feb 15, 2018 12:49 am

When a fee has been charged the expense has been made. Whether the fee has been paid by "another loan" or not - that whole amount is a "finance" expense at the time it was added to the loan. The loan arraignment fees usually have no bearing on the term of the loan - unless it is some kind of special fee that is charged on some scale related to the term of the loan.

sandy2000
Posts: 38
Joined: Wed Aug 06, 2008 3:33 pm

Re: Deducting mortgage arrangement fee

Postby sandy2000 » Thu Feb 15, 2018 12:59 am

had come across this some time ago ... http://www.fyldetaxaccountants.co.uk/property-articles/are-lender-arrangement-fees-tax-deductible-for-landlords/
--QUOTE....
But my accountant told me that I have to spread the cost of the arrangement fee over the length of the mortgage … is that right?

No! Your accountant might need a lesson in basic ‘GAAP’ … accountant-speak for ‘Generally Accepted Accounting Practice. Profits of a business – any business, including a property rental business – must be calculated using GAAP. This isn’t optional, however, for a small property rental business the FRSSE (Financial Reporting Standard for Smaller Entities) should also be applied.

The FRSSE states, at paragraph 12.4:

“Where an arrangement fee is such as to represent a significant additional cost of finance when compared with the interest payable over the life of the instrument, the treatment set out in paragraph 12.2 [similar to FRS 4] shall be followed. Where this is not the case it shall be charged in the profit and loss account immediately it is incurred.”

In the circumstances of a typical Buy to Let mortgage, an arrangement fee is not ‘significant’ compared to the interest payable over the life of the mortgage. Therefore, the correct accounting treatment under FRSSE for arrangement fee is to include the fee in the rental accounts when incurred, and in full.
--- UNQUOTE ...

sandy2000
Posts: 38
Joined: Wed Aug 06, 2008 3:33 pm

Re: Deducting mortgage arrangement fee

Postby sandy2000 » Fri Mar 16, 2018 7:57 pm


I can't find anything in the HMRC manual about this. Is my accountant correct please? Can anyone give me any pointers? Thanks
Did you manage to convince your accountant?

bd6759
Posts: 3312
Joined: Sat Feb 01, 2014 3:26 pm

Re: Deducting mortgage arrangement fee

Postby bd6759 » Fri Mar 16, 2018 10:59 pm

had come across this some time ago ... http://www.fyldetaxaccountants.co.uk/property-articles/are-lender-arrangement-fees-tax-deductible-for-landlords/
--QUOTE....
But my accountant told me that I have to spread the cost of the arrangement fee over the length of the mortgage … is that right?

No! Your accountant might need a lesson in basic ‘GAAP’ … accountant-speak for ‘Generally Accepted Accounting Practice. Profits of a business – any business, including a property rental business – must be calculated using GAAP. This isn’t optional, however, for a small property rental business the FRSSE (Financial Reporting Standard for Smaller Entities) should also be applied.

The FRSSE states, at paragraph 12.4:

“Where an arrangement fee is such as to represent a significant additional cost of finance when compared with the interest payable over the life of the instrument, the treatment set out in paragraph 12.2 [similar to FRS 4] shall be followed. Where this is not the case it shall be charged in the profit and loss account immediately it is incurred.”

In the circumstances of a typical Buy to Let mortgage, an arrangement fee is not ‘significant’ compared to the interest payable over the life of the mortgage. Therefore, the correct accounting treatment under FRSSE for arrangement fee is to include the fee in the rental accounts when incurred, and in full.
--- UNQUOTE ...
Which is basically what I said. The default position is that costs are spread over the term. The exception is where the costs are not material. The accountant has looked at it and determined that it is material and therefore has allocated it over the period of the loan. You, who are not privy to any of the detail, are trying to argue that he is wrong.

FYI, FRSSE was withdrawn on 1 January 2016. Small entities now use FRS105. It says much the same thing. Costs are spread over the term unless it is not material (para 9.7).


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