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Are these costs I incurred of a 'capital' or 'revenue' nature?

Question Could you please clarify whether the following costs are deemed to be of a 'capital' or 'revenue' classification:

a) Mortgage broker fees i.e. I have paid a mortgage broker a 1% arrangement fee
b) Mortgage lenders arrangement fee
c) Property valuation costs

Arthur Says

In IR150 para 180, of the 'Taxation of Rents' manual it says the following: "Costs you incur in obtaining loan finance for your rental business are generally deductible in computing rental business profits provided they relate wholly and exclusively to property you let out on a commercial basis. These costs include loan fees, commissions, guarantee fees and fees in connection with the security of a loan."

This therefore means that a) and b) are classed as revenue expenditures and can therefore be offset against the rental income.

Property valuation costs on the other hand are of a 'capital' nature. The following paragraph from 'Taxation of Chargeable Gains Act 1992' proves this to be the case:

'For the purposes of this section and for the purposes of all other provisions of this Act, the incidental costs to the person making the disposal of the acquisition of the asset or of its disposal shall consist of expenditure wholly and exclusively incurred by him for the purposes of the acquisition or, as the case may be, the disposal, being fees, commission or remuneration paid for the professional services of any surveyor or valuer, or auctioneer, or accountant, or agent or legal adviser and costs of transfer or conveyance (including stamp duty) together:

(a) in the case of the acquisition of an asset, with costs of advertising to find a seller, and
(b) in the case of a disposal, with costs of advertising to find a buyer and costs reasonably incurred in making any valuation or apportionment required for the purposes of the computation of the gain, including in particular expenses reasonably incurred in ascertaining market value where required by this Act.

So to summarise, a) and b) are revenue costs and can be offset against your annual rental income and c) is a capital cost which can be offset against the capital gain when you sell the property.

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