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HMRC internal manual

Business Income Manual

Specific deductions - incidental costs of loan finance: expenses allowable

S58 Income Tax (Trading and Other Income) Act 2005

The expression ‘incidental costs of obtaining finance’ means expenditure on fees, commissions, advertising, printing and other incidental matters. To qualify for the relief, the incidental costs must be wholly and exclusively incurred for the purpose of obtaining the finance, of providing security for it, or of repaying it. Expenses incurred wholly and exclusively for the purpose of obtaining finance or providing security for it are incidental costs of obtaining finance even if it is not in fact obtained.

The costs normally allowable include (but are not limited to):

  1. legal and professional expenses for negotiating the loan and preparing the documents;
  2. underwriting commissions, brokerage and introduction fees;
  3. Land Registry fees, search fees and valuer’s fees incurred in connection with the security for the loan;
  4. commitment fees for an undertaking to make a loan available (see BIM45825);
  5. commissions for guaranteeing a loan;
  6. the costs of advertising or placing a loan stock issue and the miscellaneous costs of issuing a prospectus, postage etc;
  7. the costs of securing a Stock Exchange quotation for a loan stock;
  8. the costs of ‘rolling over’, extending, replacing, varying the terms of, or changing the security on, an existing loan.

Costs of acquiring assets, take-over bids etc

A borrower may use a loan in connection with the acquisition of a capital asset (for example, where a factory is bought and financed wholly or partly by a loan). In such cases you need to identify those expenses which are associated directly with the borrowing and to exclude any expenses incurred in connection with the acquisition of the asset. Similarly, where a take-over bid is made in consideration for the issue of both shares and loan stock, only those costs that are wholly and exclusively incurred for the purpose of issuing the loan stock are allowable.

Life insurance premiums

The allowable expenses listed in the legislation form a class that would include any incidental costs of taking out a life insurance policy (for example a mortgage protection policy) but not the cost of the policy itself, that is, the premiums.

Currency movements, stamp duty and premiums/discounts

The specific exclusions are discussed in BIM45820.