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  • Tax

    Mortgage product fees

    I have a choice of taking £170,000  2 year fixed mortgage at: 1.89% + 1999 product fee, or 2.89% with no fee.

    My question is if I go for the low rate with the product fee is this tax deductible from the rental income?

    If it is, then it occurred to me that this might be a way to alleviate section 24 tax problems. ie pay product fees rather then interest.

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    S24 doesn’t only include interest, it affects ALL finance costs, so from that point of view there’s no difference between interest and product fees.
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    I THINK his point is that by paying the fee now he gets some tax relief due to the phasing in, as opposed to prob none in 1-2 yrs time on the interest?  perhaps im reading too much into the question...

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    The answer comes down to pure maths

    it is a £1,401 savings by paying the fee

    £170,000 x 1% = £1,700pa x 2years = £3,400

    So £1,999 product fee or £3,400 in xtra interest, I think it's a no brainer.

    Even if you went and got a loan to pay the fee, the repayments over 2 years is likely to be far less than the addditional £141.66pm interest you'd pay with the extra 1%.

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    Of course it depends on whether you use cash accounting or the accruals regime. Under the former the arrangement fee is a finance when you complete. Under the latter it is spread out across the term of what you took out (usually product period) so that it's a constant ROI.
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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022