When buying a mortgage whether for a home or an investment property, knowing which costs are tax deductible can help you manage your tax bill. One common question is: Are mortgage broker fees tax deductible in the UK? The answer depends on whether the mortgage is for a residential home or a property business, such as a buy-to-let mortgage or a commercial investment.
Mortgage Broker Fees for Residential Properties
If you’re buying loan finance for your main residence, mortgage broker fees, arrangement fees and other costs in the mortgage process are not tax deductible. These are personal costs and don’t qualify as an allowable expense under UK property tax laws. Even though mortgage lenders charge various fees, such as valuation and application costs, these can’t be deducted when working out income tax liability.
However, when you sell a residential property some incidental costs incurred – such as legal fees or estate agent commission – might be taken into account when calculating capital gains tax. Mortgage fees are not tax deductible.
Mortgage Broker Fees for Buy-to-Let and Investment Properties
For landlords and investors the rules are different. If you’re buying a property for business purposes, such as a buy-to-let mortgage, many costs relating to obtaining loan finance may be considered allowable expenses and therefore tax deductible.
What Can Landlords Deduct?
If a mortgage is taken out for a rental property, some of the fees paid to a mortgage broker, including broker commission, may be considered part of the incidental costs incurred when securing the loan. These may be deductible when calculating rental income profits for self-assessment or corporation tax, depending on whether the property is owned personally or via a company.
In addition to mortgage broker fees, landlords can often deduct:
- Finance costs, including mortgage interest (subject to the mortgage interest relief rules)
- Legal fees relating to the purchase of a rental property
- Accountant and tax advisor fees for managing income and corporation taxes
- Letting agent and property management costs
- Repairs, maintenance and other allowable business expenses
However, since 2017, mortgage interest relief has been restricted, so landlords can no longer deduct mortgage interest from their rental income when calculating taxable profits. Instead a tax relief credit is applied to income tax, which may affect landlords in higher tax brackets.
Corporation Tax and Limited Companies
For landlords running their property business through a limited company, mortgage finance costs are generally deductible for corporation tax purposes. Many investors have moved their properties into a corporate structure to benefit from different tax treatment, particularly as corporation tax rates are lower than higher-rate income tax.
However, tax treatment varies and seeking guidance from a tax advisor or accountant is essential to ensure compliance with relevant legislation.
Can You Deduct Mortgage Fees When Selling an Investment Property?
When selling an investment property some incidental costs incurred, such as legal and estate agent fees, can be deducted when calculating capital gains tax liability. However, mortgage broker fees and most finance costs are not deductible in this calculation. Instead they’re claimed against rental profits in the tax year they were incurred.
Get Professional Mortgage and Tax Advice
Navigating UK property tax rules can be complex, especially when dealing with loan finance, rental income, and self-assessment. Whether you’re securing a buy-to-let mortgage, managing business expenses, or planning your tax deductions, working with mortgage experts and tax professionals can help.
If you’re looking for expert mortgage advice, Eden Hawk can guide you through the best mortgage products, ensuring you make informed financial decisions while maximising potential tax relief opportunities.
